REG - Bank of Cyprus Hldgs - Half-year Report -Part 3
09/08/2023 07:15
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RNS Number : 7754I Bank of Cyprus Holdings PLC 09 August 2023
17. Fair value measurement
The following table presents the carrying value and fair value of the Group's
financial assets and liabilities.
30 June 2023 31 December 2022
(restated)
Carrying value Fair value Carrying value Fair value
Financial assets €000 €000 €000 €000
Cash and balances with central banks 9,127,429 9,127,429 9,567,258 9,567,258
Loans and advances to banks 431,812 419,210 204,811 193,349
Investments at FVPL 138,661 138,661 190,209 190,209
Investments at FVOCI 487,806 487,806 467,375 467,375
Investments at amortised cost 2,703,240 2,619,189 2,046,119 1,953,336
Derivative financial assets 49,302 49,302 48,153 48,153
Loans and advances to customers 10,007,819 10,038,152 9,953,252 10,011,741
Life insurance business assets attributable to policyholders 576,272 576,272 531,061 531,061
Other financial assets 423,334 462,915 402,462 456,402
23,945,675 23,918,936 23,410,700 23,418,884
Financial liabilities
Funding from central banks and deposits by banks 2,453,193 2,401,740 2,484,332 2,399,266
Derivative financial liabilities 18,391 18,391 16,169 16,169
Customer deposits 19,166,155 19,124,073 18,998,319 18,963,934
Debt securities in issue 291,976 264,738 297,636 254,179
Subordinated liabilities 309,348 295,475 302,104 265,472
Other financial liabilities and lease liabilities 254,690 254,690 250,352 250,352
22,493,753 22,359,107 22,348,912 22,149,372
The fair value of financial assets and liabilities in the above table is as at
the reporting date and does not represent any expectations about their future
value.
The Group uses the following hierarchy for determining and disclosing fair
value:
Level 1: investments valued using quoted prices in active markets.
Level 2: investments valued using models for which all inputs that have a
significant impact on fair value are market observable.
Level 3: investments valued using models for which inputs that have a
significant impact on fair value are not based on market observable data.
For assets and liabilities that are recognised in the Consolidated Financial
Statements at fair value, the Group determines whether transfers have occurred
between levels in the hierarchy by re‑assessing categorisation at the end of
each reporting period.
The following is a description of the determination of fair value for
financial instruments which are recorded at fair value on a recurring and on a
non‑recurring basis and for financial instruments which are not measured at
fair value but for which fair value is disclosed, using valuation techniques.
These incorporate the Group's estimate of assumptions that a market
participant would make when valuing the instruments.
Derivative financial instruments
Derivative financial instruments valued using a valuation technique with
market observable inputs are mainly interest rate swaps, currency swaps,
currency rate options, forward foreign exchange rate contracts and interest
rate collars. The most frequently applied valuation techniques include forward
pricing and swap models, using present value calculations. The models
incorporate various inputs including the credit quality of counterparties,
foreign exchange spot and forward rates and interest rate curves.
Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA)
The CVA and DVA are incorporated into derivative valuations to reflect the
impact on fair value of counterparty risk and BOC PCL's own credit quality
respectively.
The Group calculates the CVA by applying the PD of the counterparty,
conditional on the non‑default of the Group, to the Group's expected
positive exposure to the counterparty and multiplying the result by the loss
expected in the event of default. Conversely, the Group calculates the DVA by
applying BOC PCL's PD, conditional on the non‑default of the counterparty,
to the expected positive exposure of the counterparty to the Group and
multiplying the result by the loss expected in the event of default.
The expected exposure of derivatives is calculated as per the CRR and takes
into account the netting agreements where they exist. A standard Loss Given
Default (LGD) assumption in line with industry norms is adopted. Alternative
LGD assumptions may be adopted when both the nature of the exposure and the
available data support this.
The Group does not hold any significant derivative instruments which are
valued using a valuation technique with significant non‑market observable
inputs.
Investments at FVPL, investments at FVOCI and investments at amortised cost
Investments which are valued using a valuation technique or pricing models,
primarily consist of unquoted equity securities and debt securities. These
assets are valued using valuation models which sometimes only incorporate
market observable data and at other times use both observable and
non‑observable data. The rest of the investments are valued using quoted
prices in active markets.
Loans and advances to customers
The fair value of loans and advances to customers is based on the present
value of expected future cash flows. Future cash flows have been based on the
future expected loss rate per loan portfolio, taking into account expectations
for the credit quality of the borrowers. The discount rate includes components
that capture the risk‑free rate per currency, funding cost, servicing cost
and the cost of capital, considering the risk weight of each loan. The
discount rate used in the determination of the fair value of the loans and
advances to customers measured at FVPL during the six months ended 30 June
2023 ranges from 6.35% to 6.82% (31 December 2022: 2.66%‑4.86%).
Customer deposits
The fair value of customer deposits is determined by calculating the present
value of future cash flows. The discount rate takes into account current
market rates and the credit profile of BOC PCL. The fair value of deposits
repayable on demand and deposits protected by the Deposit Protection Guarantee
Scheme are approximated by their carrying values.
Loans and advances to banks
Loans and advances to banks with maturity over one year are discounted using
an appropriate risk‑free rate plus the appropriate credit spread. For
short‑term lending, the fair value is approximated by the carrying value.
Deposits by banks and funding from central banks
Deposits by banks and funding from central banks with maturity over one year
are discounted using an appropriate risk‑free rate plus the appropriate
credit spread. For short‑term funding, the fair value is approximated by the
carrying value.
Debt securities in issue and Subordinated liabilities
Debt securities and subordinated liabilities issuances are traded in an active
market with quoted prices.
Model inputs for valuation
Observable inputs to the models for the valuation of unquoted equity and debt
securities include, where applicable, current and expected market interest
rates, market expected default rates, market implied country and counterparty
credit risk and market liquidity discounts.
The following table presents the fair value measurement hierarchy of the
Group's financial assets and financial liabilities recorded at fair value and
financial assets and financial liabilities for which fair value is disclosed,
by level of the fair value hierarchy:
Level 1 Level 2 Level 3 Total
30 June 2023 €000 €000 €000 €000
Financial assets measured at fair value
Loans and advances to customers measured at FVPL - - 210,385 210,385
Trading derivatives
Forward exchange rate contracts - 204 - 204
Currency swaps - 4,890 - 4,890
Interest rate swaps - 360 - 360
Currency options - 123 - 123
Interest rate caps/floors - 3,699 - 3,699
- 9,276 - 9,276
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 40,024 - 40,024
Net investments‑forward exchange rate contracts and currency swaps - - 2
2
- 40,026 - 40,026
Investments at FVPL 42,828 92,469 3,364 138,661
Investments at FVOCI 476,228 - 11,578 487,806
519,056 141,771 225,327 886,154
Other financial assets not measured at fair value
Loans and advances to banks - 419,210 - 419,210
Investments at amortised cost 2,434,498 175,535 9,156 2,619,189
Loans and advances to customers - - 9,827,767 9,827,767
2,434,498 594,745 9,836,923 12,866,166
For loans and advances to customers measured at FVPL categorised as Level 3,
an increase in the discount factor by 10% would result in a decrease of
€3,637 thousand in their fair value and a decrease in the discount factor by
10% would result in an increase of €1,888 thousand in their fair value.
For one investment included in other non‑equity securities mandatorily
measured at FVPL as a result of the SPPI assessment and categorised as Level 3
with a carrying amount of €3,364 thousand as at 30 June 2023, a change in
the conversion factor by 10% would result in a change in the value of the
other non‑equity securities by €336 thousand.
Level 1 Level 2 Level 3 Total
30 June 2023 €000 €000 €000 €000
Financial liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts - 124 - 124
Currency swaps - 3,615 - 3,615
Interest rate swaps - 347 - 347
Currency options - - 2
2
Interest rate caps/floors - 3,699 - 3,699
- 7,787 - 7,787
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 10,604 - 10,604
- 10,604 - 10,604
- 18,391 - 18,391
Other financial liabilities not measured at fair value
Funding from central banks - 1,996,982 - 1,996,982
Deposits by banks - 404,758 - 404,758
Customer deposits - - 19,124,073 19,124,073
Debt securities in issue 264,738 - - 264,738
Subordinated liabilities 295,475 - - 295,475
560,213 2,401,740 19,124,073 22,086,026
Level 1 Level 2 Level 3 Total
31 December 2022 €000 €000 €000 €000
Financial assets measured at fair value
Loans and advances to customers measured at FVPL - - 214,359 214,359
Trading derivatives
Forward exchange rate contracts - 103 - 103
Currency swaps - 283 - 283
Interest rate swaps - 437 - 437
Currency options - 287 - 287
Interest rate caps/floors - 3,094 - 3,094
- 4,204 - 4,204
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 43,939 - 43,939
Net investments‑forward exchange rate contacts and currency swaps - - 10
10
- 43,949 - 43,949
Investments at FVPL 84,743 96,498 8,968 190,209
Investments at FVOCI 455,110 - 12,265 467,375
539,853 144,651 235,592 920,096
Other financial assets not measured at fair value
Loans and advances to banks - 193,349 - 193,349
Investments at amortised cost 1,871,757 69,300 12,279 1,953,336
Loans and advances to customers - - 9,797,382 9,797,382
1,871,757 262,649 9,809,661 11,944,067
For loans and advances to customers measured at FVPL categorised as Level 3,
an increase in the discount factor by 10% would result in a decrease of
€4,538 thousand in their fair value and a decrease in the discount factor by
10% would result in an increase of €1,145 thousand in their fair value.
For one investment included in other non‑equity securities mandatorily
measured at FVPL as a result of the SPPI assessment and categorised as Level 3
with a carrying amount of €8,968 thousand as at 31 December 2022, a change
in the conversion factor by 10% would result in a change in the value of the
other non‑equity securities by €897 thousand.
Level 1 Level 2 Level 3 Total
31 December 2022 €000 €000 €000 €000
Financial liabilities measured at fair value
Trading derivatives
Forward exchange rate contracts - 123 - 123
Currency swaps - 10,316 - 10,316
Interest rate swaps - 420 - 420
Currency options - - 65
65
Interest rate caps/floors - 3,094 - 3,094
- 14,018 - 14,018
Derivatives qualifying for hedge accounting
Fair value hedges‑interest rate swaps - 2,151 - 2,151
- 2,151 - 2,151
- 16,169 - 16,169
Other financial liabilities not measured at fair value
Funding from central banks - 1,944,145 - 1,944,145
Deposits by banks - 455,121 - 455,121
Customer deposits - - 18,963,934 18,963,934
Debt securities in issue 254,179 - - 254,179
Subordinated liabilities 265,472 - - 265,472
519,651 2,399,266 18,963,934 21,882,851
The cash and balances with central banks are financial instruments whose
carrying value is a reasonable approximation of fair value because they are
mostly short‑term in nature or are repriced to current market rates
frequently. The carrying value of other financial assets, other than the
deferred purchase payment consideration (Note 20), and other financial
liabilities is a close approximation of their fair value and they are
categorised as Level 3.
During the six months ended 30 June 2023 and the year ended 31 December 2022
there were no significant transfers between Level 1 and Level 2.
Movements in Level 3 assets measured at fair value
Transfers from Level 3 to Level 2 occur when the market for some securities
becomes more liquid, which eliminates the need for the previously required
significant unobservable valuation inputs. Following a transfer to Level 2 the
instruments are valued using valuation models incorporating observable market
inputs. Transfers into Level 3 reflect changes in market conditions as a
result of which instruments become less liquid. Therefore, the Group requires
significant unobservable inputs to calculate their fair value.
The movement in Level 3 financial assets which are measured at fair value is
presented below:
30 June 2023 31 December 2022
Loans and advances to customers Financial instruments Total Loans and advances to customers Financial instruments Total
€000 €000 €000 €000 €000 €000
1 January 214,359 21,233 235,592 281,868 19,897 301,765
Additions - - - - 10,054 10,054
Disposals - - - - (500) (500)
Conversion of instruments into common shares - (6,521) (6,521) - (4,102) (4,102)
Fair value gains/(losses) - 293 293 - (4,133) (4,133)
Net (losses)/gains on loans and advances to customers measured at FVPL (Note (9) - (9) 4,050 - 4,050
10)
Derecognition/repayment of loans (10,228) - (10,228) (82,522) - (82,522)
Interest on loans (Note 8) 6,263 - 6,263 10,963 - 10,963
Foreign exchange adjustments - (63) (63) - 17 17
30 June/31 December 210,385 14,942 225,327 214,359 21,233 235,592
18. Loans and advances to customers
30 June 31 December 2022
2023
€000 €000
Gross loans and advances to customers at amortised cost 9,995,335 9,917,335
Allowance for ECL for impairment of loans and advances to customers (Note (197,901) (178,442)
30.4)
9,797,434 9,738,893
Loans and advances to customers measured at FVPL 210,385 214,359
10,007,819 9,953,252
The following tables present the Group's gross loans and advances to customers
at amortised cost by staging and by geographical analysis (based on the
country in which the loans are managed).
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2023 €000 €000 €000 €000 €000
Gross loans at amortised cost before residual fair value adjustment on initial 8,261,687 1,365,799 335,225 107,622 10,070,333
recognition
Residual fair value adjustment on initial recognition (63,508) (8,678) (1,433) (1,379) (74,998)
Gross loans at amortised cost 8,198,179 1,357,121 333,792 106,243 9,995,335
Cyprus 8,197,984 1,357,121 333,263 106,243 9,994,611
Other Countries - -
195 529 724
8,198,179 1,357,121 333,792 106,243 9,995,335
31 December 2022
Gross loans at amortised cost before residual fair value adjustment on initial 7,931,511 1,586,488 372,821 115,544 10,006,364
recognition
Residual fair value adjustment on initial recognition (64,255) (20,885) (1,803) (2,086) (89,029)
Gross loans at amortised cost 7,867,256 1,565,603 371,018 113,458 9,917,335
Cyprus 7,867,037 1,565,603 368,922 113,458 9,915,020
Other countries - 2,096 - 2,315
219
7,867,256 1,565,603 371,018 113,458 9,917,335
Residual fair value adjustment
The residual fair value adjustment on initial recognition mainly relates to
the loans and advances to customers acquired as part of the acquisition of
certain operations of Laiki Bank in 2013. In accordance with the provisions of
IFRS 3, this adjustment decreased the gross balance of loans and advances to
customers. The residual fair value adjustment is included within the gross
balances of loans and advances to customers as at each balance sheet date.
However, for credit risk monitoring, the residual fair value adjustment as at
each balance sheet date is presented separately from the gross balances of
loans and advances, as shown in the tables above.
Loans and advances to customers measured at FVPL are managed in Cyprus.
The following tables present the Group's gross loans and advances to customers
at amortised cost by staging and by business line concentration.
30 June 2023 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate and Large Corporate 2,735,590 659,540 50,445 34,094 3,479,669
International corporate 694,641 694,822
124 37 20
SMEs 852,732 121,177 3,161 9,160 986,230
Retail
‑ housing 2,970,005 363,472 24,131 11,075 3,368,683
‑ consumer, credit cards and other 777,635 125,125 11,260 14,166 928,186
Restructuring
‑ corporate 3,615 19,549 20,046 10,206 53,416
‑ SMEs 10,357 12,003 14,622 2,806 39,788
‑ retail housing 5,466 20,629 41,537 2,258 69,890
‑ retail other 2,062 4,666 16,117 23,799
954
Recoveries
‑ corporate - - 17,483 1,154 18,637
‑ SMEs - - 29,414 1,664 31,078
‑ retail housing - - 78,342 12,168 90,510
‑ retail other - 26,089 5,783 31,956
84
International business unit 105,910 24,658 1,103 131,848
177
Wealth management 40,082 6,178 46,823
5 558
8,198,179 1,357,121 333,792 106,243 9,995,335
31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate and Large Corporate 2,502,630 807,282 54,259 34,616 3,398,787
International corporate 685,099 685,308
150 35 24
SMEs 825,123 189,825 3,299 10,364 1,028,611
Retail
‑ housing 2,982,436 305,714 30,071 12,413 3,330,634
‑ consumer, credit cards and other 704,959 152,815 14,376 15,746 887,896
Restructuring
‑ corporate 2,842 34,246 20,689 10,175 67,952
‑ SMEs 12,643 10,603 23,374 2,381 49,001
‑ retail housing 5,168 22,018 42,155 3,292 72,633
‑ retail other 1,713 5,364 16,237 1,029 24,343
Recoveries
‑ corporate - - 18,403 1,316 19,719
‑ SMEs - - 29,339 2,366 31,705
‑ retail housing - - 88,956 14,039 102,995
‑ retail other - 28,569 4,953 33,630
108
International business unit 104,539 31,934 1,254 137,874
147
Wealth management 39,996 5,652 46,247
2 597
7,867,256 1,565,603 371,018 113,458 9,917,335
Loans and advances to customers pledged as collateral are disclosed in Note
32.
Additional analysis and information regarding credit risk and analysis of the
allowance for ECL of loans and advances to customers are set out in Note 30.
19. Stock of property
The carrying amount of stock of property is determined as the lower of cost
and net realisable value. Impairment is recognised if the net realisable value
is below the cost of the stock of property. During the six months ended 30
June 2023 an impairment loss of €23,206 thousand (30 June 2022: €7,364
thousand) was recognised in 'Impairment net of reversals on non‑financial
assets' in the consolidated income statement. At 30 June 2023, stock of
property of €510,448 thousand (31 December 2022: €529,316 thousand) is
carried at net realisable value. Additionally, at 30 June 2023 stock of
property with a carrying amount of €49,137 thousand (31 December 2022:
€108,010 thousand) is carried at approximately its fair value less costs to
sell.
The stock of property includes residential properties, offices and other
commercial properties, manufacturing and industrial properties, hotels and
land (fields and plots). There is no stock of property pledged as collateral
for central bank funding facilities under Eurosystem monetary policy
operations.
The carrying amount of the stock of property is analysed in the tables below:
30 June 31 December
2023
2022
€000 €000
Net book value at 1 January 1,041,032 1,111,604
Additions 4,440 76,851
Disposals (57,872) (126,797)
Net transfers (to)/from property and equipment (18,563) -
Impairment (Note 12) (23,206) (20,628)
Foreign exchange adjustments - 2
Net book value at 30 June/31 December 945,831 1,041,032
As at 30 June 2023 there are charges against stock of property of the Group
with a carrying value €19,500 thousand (31 December 2022: €20,989
thousand).
Analysis by type and country Cyprus Greece Romania Total
30 June 2023 €000 €000 €000 €000
Residential properties 52,628 16,354 69,013
31
Offices and other commercial properties 114,797 11,129 - 125,926
Manufacturing and industrial properties 27,398 9,617 - 37,015
Hotels 22,570 417 - 22,987
Land (fields and plots) 687,054 3,836 - 690,890
Total 904,447 41,353 945,831
31
31 December 2022
Residential properties 63,724 16,947 80,703
32
Offices and other commercial properties 142,475 11,263 - 153,738
Manufacturing and industrial properties 29,172 11,710 40,930
48
Hotels 24,027 437 - 24,464
Land (fields and plots) 736,913 4,284 - 741,197
Total 996,311 44,641 1,041,032
80
20. Prepayments, accrued income and other assets
30 June 31 December 2022 (restated)
2023
€000 €000
Financial assets
Debtors 32,363 29,220
Receivable relating to tax 4,397 4,536
Deferred purchase payment consideration 320,655 311,523
Other assets 65,919 57,183
423,334 402,462
Non‑financial assets
Reinsurers' share of insurance contract liabilities 50,580 46,781
Current tax receivable 93,681 124,328
Prepaid expenses 1,426 682
Retirement benefit plan assets 850 816
Other assets 39,736 33,985
186,273 206,592
609,607 609,054
There were no financial assets classified as Stage 2 as at 30 June 2023 and 31
December 2022. In addition, no financial assets were measured at FVPL as at 30
June 2023 and 31 December 2022.
On the completion date of the sale of Project Helix 2 (the 'Transaction') in
June 2021, the Group recognised an amount of €381,567 thousand in other
financial assets, which represented the fair value of the deferred
consideration receivable from the Transaction (the 'DPP'). This amount
outstanding is payable in four instalments up to December 2025 and each
instalment carries interest up to each payment date. An amount of €9,098
thousand, which represents the interest income on DPP has been recognised in
the Consolidated Income Statement for the six months ended 30 June 2023 (30
June 2022: €4,314 thousand) within 'Interest income‑Financial assets at
amortised cost‑Other financial assets' (Note 8). There are no other
conditions attached. The DPP is classified as Stage 1 as at 30 June 2023 and
31 December 2022.
During the six months ended 30 June 2023, credit losses of €6,110 thousand
were recognised in relation to other financial assets. This includes ECL
losses of €246 thousand (of which €35 thousand relate to a partial
reversal for 12‑months ECL of the DPP) and €5,864 thousand impairment
losses. During the six months ended 30 June 2022, credit losses of €705
thousand were recognised in relation to prepayments, accrued income and other
financial assets. This includes ECL losses of €117 thousand (of which €188
thousand relate to 12‑months ECL of the DPP) and €588 thousand impairment
losses.
21. Funding from central banks
Funding from central banks comprises funding from the ECB under Eurosystem
monetary policy operations as set out in the table below:
30 June 31 December 2022
2023
€000 €000
Targeted Longer‑Term Refinancing Operations (TLTRO IΙI) 2,004,480
1,976,674
As at 30 June 2023, ECB funding amounted to €2 billion (31 December 2022:
€2 billion) borrowed from various TLTRO III operations.
In recognition of the challenging credit environment during the pandemic
period, the Governing Council of the ECB announced that for the counterparties
whose eligible net lending reached the lending performance thresholds, the
interest rate applied over the periods from 24 June 2020 to 23 June 2021 and
24 June 2021 to 23 June 2022 would be 50 basis points below the average
interest rate on the deposit facility prevailing over the same period, and in
any case not higher than minus 1%. BOC PCL exceeded the eligible net lending
threshold applicable in the specified periods and was entitled to the
beneficial rate of minus 1% for the period June 2020 to June 2022 and
recognised interest at the beneficial rate over the corresponding period.
Subsequently, BOC PCL updated the effective interest rate based on the
contractual terms and applicable changes in terms of the operations as a
change in the EIR applied prospectively.
ECB during its October 2022 meeting, announced that from 23 November 2022
onwards, the applicable interest rate would be indexed to the average
applicable key ECB interest rates from that date onward.
The maturity of TLTRO III is three years from the settlement of each
operation, but there is an option to early repay or reduce the amounts
borrowed before their respective final maturity.
BOC PCL early repaid €1 billion of TLTRO III funding in December 2022.
Details on encumbered assets related to the above funding facilities are
disclosed in Note 32.
22. Customer deposits
30 June 31 December 2022
2023
€000 €000
By type of deposit
Demand 10,359,755
10,561,724
Savings 2,948,823
2,840,346
Time or notice 5,857,577
5,596,249
19,166,155
18,998,319
By geographical area
Cyprus 13,378,996
13,019,109
Greece 1,845,882
1,933,771
United Kingdom
686,916 706,233
United States
149,455 178,962
Germany
117,613 168,785
Romania
60,772 69,514
Russia
636,234 700,465
Ukraine
301,407 290,050
Belarus
81,223 83,299
Other countries 1,907,657
1,848,131
19,166,155
18,998,319
Deposits by geographical area are based on the country of passport of the
Ultimate Beneficial Owner.
30 June 31 December 2022
2023
€000 €000
By currency
Euro 17,298,147
17,067,299
US Dollar 1,475,065
1,529,548
British Pound
325,625 333,458
Russian Rouble
1,825 3,466
Swiss Franc
11,150 11,796
Other currencies
54,343 52,752
19,166,155
18,998,319
30 June 31 December 2022
2023
€000 €000
By business line
Corporate and Large corporate 1,964,893
1,915,300
International corporate
131,044 139,898
SMEs
962,581 1,007,555
Retail 11,667,105
11,333,783
Restructuring
- Corporate
13,700 16,017
- SMEs
6,992 6,375
- Retail other
13,142 10,152
Recoveries
- Corporate
1,155 1,262
International business unit 3,848,653
3,957,050
Wealth management
556,890 610,927
19,166,155
18,998,319
23. Debt securities in issue and Subordinated liabilities
30 June 2023 31 December 2022
Nominal value Carrying value Nominal value Carrying value
Subordinated liabilities Contractual interest rate Issuer €000 €000 €000 €000
Subordinated Tier 2 Capital Note ‑ April 2021 6.625% up to BOCH 300,000 309,348 300,000 302,104
23 October 2026
300,000 309,348 300,000 302,104
Debt securities in issue
Senior Preferred Notes ‑ June 2021 2.50% up to BOC PCL 300,000 291,976 300,000 297,636
24 June 2026
BOCH and BOC PCL maintain a Euro Medium Term Note (ΕΜΤΝ) Programme with an
aggregate nominal amount up to €4,000 million.
Subordinated Liabilities
Subordinated Tier 2 Capital Note ‑ April 2021
In April 2021, BOCH issued a €300 million unsecured and subordinated Tier 2
Capital Note under the EMTN Programme. The note was priced at par with a
coupon of 6.625% per annum payable annually in arrears and resettable on 23
October 2026 at the then prevailing 5‑year swap rate plus a margin of 6.902%
per annum up to 23 October 2031, payable annually. The note matures on 23
October 2031. BOCH has the option to redeem the note early on any day during
the six‑month period from 23 April 2026 to 23 October 2026, subject to
applicable regulatory consents. The note is listed on the Luxembourg Stock
Exchange's Euro MTF market.
The fair value of the subordinated liabilities as at 30 June 2023 and 31
December 2022 is disclosed in Note 17.
Debt securities in issue
Senior Preferred Notes ‑ June 2021
In June 2021, BOC PCL issued a €300 million senior preferred note under the
EMTN Programme. The note was priced at par with a fixed coupon of 2.50% per
annum, payable annually in arrears and resettable on 24 June 2026. The note
matures on 24 June 2027. BOC PCL has the option to redeem the note early on 24
June 2026, subject to applicable regulatory consents. The note is listed on
the Luxembourg Stock Exchange's Euro MTF market. The note complies with the
criteria for the minimum requirement for own funds and eligible liabilities
(MREL) and contributes towards BOC PCL's MREL requirements.
The fair value of the debt securities in issue as at 30 June 2023 and 31
December 2022 is disclosed in Note 17.
24. Accruals, deferred income, other liabilities and other
provisions
30 June 31 December 2022
2023
(restated)
€000 €000
Income tax payable and related provisions 75,477 41,420
Special defence contribution payable 363 379
Retirement benefit plans liabilities 1,959 3,694
Provisions for financial guarantees and commitments 18,007 17,429
Liabilities arising from non‑participating investment contracts 60,029 47,847
Accrued expenses and other provisions 60,801 65,734
Deferred income 19,060 18,061
Items in the course of settlement 75,111 97,585
Lease liabilities 28,627 30,190
Other liabilities 90,151 56,843
429,585 379,182
Other liabilities include an amount of €10,385 thousand (31 December 2022:
€10,385 thousand) relating to the guarantee fee for the conversion of DTA
into tax credits (Note 13) and an amount of €16,298 thousand (31 December
2022: €9,874 thousand) relating to card processing transactions.
25. Share capital
30 June 2023 31 December 2022
Number of shares (thousand) €000 Number of shares (thousand) €000
Authorised
Ordinary shares of €0.10 each 10,000,000 1,000,000 10,000,000 1,000,000
Issued
1 January and 30 June/31 December 446,200 44,620 446,200 44,620
Authorised and issued share capital
All issued ordinary shares carry the same rights.
There were no changes to the authorised or issued share capital during the six
months ended 30 June 2023 and the year ended 31 December 2022.
Share premium reserve
There were no changes to the share premium reserve during the six months ended
30 June 2023 and the year ended 31 December 2022.
Treasury shares of the Company
The consideration paid, including any directly attributable incremental costs
(net of income taxes), for shares of the Company held by entities controlled
by the Group is deducted from equity attributable to the owners of the Company
as treasury shares, until these shares are cancelled or reissued. No gain or
loss is recognised in the consolidated income statement on the purchase, sale,
issue or cancellation of such shares.
The life insurance subsidiary of the Group, as at 30 June 2023, held a total
of 142 thousand ordinary shares of the Company of a nominal value of €0.10
each (31 December 2022: 142 thousand ordinary shares of a nominal value of
€0.10 each), as part of its financial assets which are invested for the
benefit of insurance policyholders. The cost of acquisition of these shares
was €21,463 thousand (31 December 2022: €21,463 thousand).
Other equity instruments
30 June 31 December 2022
2023
€000 €000
2018 Reset Perpetual Additional Tier 1 Capital Securities (Existing Capital 15,517 220,000
Securities)
2023 Reset Perpetual Additional Tier 1 Capital Securities (New Capital 220,000 -
Securities)
235,517 220,000
In December 2018, the Company issued €220 million Fixed Rate Reset Perpetual
Additional Tier 1 Capital Securities (the 'Existing Capital Securities'). The
Existing Capital Securities constitute an unsecured and subordinated
obligation of the Company. The coupon is at 12.50% and is payable
semi‑annually. During the six months ended 30 June 2023, a coupon payment
was made to the holders of a total amount of €13,750 thousand and has been
recognised in retained earnings (30 June 2022: €13,750 thousand). The
Existing Capital Securities are listed on the Luxembourg Stock Exchange's Euro
Multilateral Trading Facility (MTF) market.
The Company, in June 2023, invited the holders of its outstanding €220
million Existing Capital Securities to tender their Existing Capital
Securities for cash purchase by the Company at a price equal to 103% of the
principal amount. The Company also paid accrued interest on the Existing
Capital Securities, from the last coupon date, 15 June 2023 until the
settlement date.
The Company received valid tenders of approximately €204 million in
aggregate nominal amount, all of which were accepted by the Company. As a
result, a cost of €6,554 thousand was recorded directly in equity in June
2023, forfeiting relevant future coupon payments.
In July 2023, the Company purchased in the open market approximately €7
million, further reducing the outstanding nominal amount of the Existing
Capital Securities to approximately €8 million.
At the same time, the Company on 13 June 2023, successfully launched and
priced an issue of €220 million Fixed Rate Reset Perpetual Additional Tier 1
Capital Securities (the 'New Capital Securities'). The New Capital Securities
constitute unsecured and subordinated obligations of the Company, are
perpetual and are issued at par. They carry an initial coupon of 11.875% per
annum, payable semi‑annually, and resettable on 21 December 2028 and every 5
years thereafter. The Company may elect to cancel any interest payment for an
unlimited period, on a non‑cumulative basis, whereas it mandatorily cancels
interest payment under certain conditions. The New Capital Securities are
perpetual and have no fixed date of redemption, but can be redeemed (in whole
but not in part) at the Company's option from, and including, 21 June 2028 to,
and including, 21 December 2028 and on each interest payment date thereafter,
subject to applicable regulatory consents and the relevant conditions to
redemption. The New Capital Securities are listed on the Luxembourg Stock
Exchange's Euro Multilateral Trading Facility (MTF) market.
Transaction costs of €3,530 thousand in relation to the transactions were
recorded directly in equity in June 2023.
26. Dividends
Based on the 2022 SREP decision, effective from 1 January 2023, any equity
dividend distribution is subject to regulatory approval, both for the Company
and BOC PCL. The requirement for approval does not apply if the distributions
are made via the issuance of new ordinary shares to the shareholders which are
eligible as Common Equity Tier 1 Capital nor to the payment of coupons on any
AT1 capital instruments issued by the Company or BOC PCL.
In April 2023, the Company obtained the approval of the European Central Bank
to pay a dividend. Following this approval, the Board of Directors of the
Company recommended to the shareholders for approval at the Annual General
Meeting ('AGM') on 26 May 2023, a final dividend of €0.05 per ordinary share
in respect of the earnings of the year ended 31 December 2022 ('Dividend').
The AGM on 26 May 2023 declared a final dividend of €0.05 per share. The
Dividend amounts to €22,310 thousand in total and is equivalent to a payout
ratio of 14% of the financial year 2022 recurring profitability adjusted for
the AT1 coupon or 31% based on the financial year 2022 profit after tax (as
reported in the 2022 Annual Financial Report).
27. Provisions for pending litigation, claims, regulatory and
other matters
The Group, in the ordinary course of business, is involved in various disputes
and legal proceedings and is subject to enquiries and examinations, requests
for information, audits, investigations, legal and other proceedings by
regulators, governmental and other public bodies, actual and threatened,
relating to the suitability and adequacy of advice given to clients or the
absence of advice, lending and pricing practices, selling and disclosure
requirements, record keeping, filings and a variety of other matters. In
addition, as a result of the deterioration of the Cypriot economy and banking
sector in 2012 and the subsequent restructuring of BOC PCL in 2013 as a result
of the bail‑in Decrees, BOC PCL is subject to a large number of proceedings
and investigations that either precede or result from the events that occurred
during the period of the bail‑in Decrees.
Apart from what is described below, the Group considers that none of these
matters are material, either individually or in aggregate. Nevertheless,
provisions have been made where: (a) there is a present obligation (legal or
constructive) arising from past events, (b) the settlement of the obligation
is expected to result in an outflow of resources embodying economic benefits,
and (c) a reliable estimate of the amount of the obligation can be made. The
Group has not disclosed an estimate of the potential financial effect on its
contingent liabilities arising from these matters where it is not practicable
to do so, because it is too early or the outcome is too uncertain or, in cases
where it is practicable, where disclosure could prejudice conduct of the
matters. Provisions have been recognised for those cases where the Group is
able to estimate probable losses (Note 6.4). Where an individual provision is
material, the fact that a provision has been made is stated except to the
extent that doing so would be prejudicial. Any provision recognised does not
constitute an admission of wrongdoing or legal liability. There are also
situations where the Group may enter into a settlement agreement. This may
occur only if such settlement is in BOC PCL's interest (such settlement does
not constitute an admission of wrongdoing) and only takes place after
obtaining legal advice and all approvals by the appropriate bodies of
management. While the outcome of these matters is inherently uncertain,
management believes that, based on the information available to it,
appropriate provisions have been made in respect of legal proceedings,
regulatory and other matters as at 30 June 2023 and hence it is not believed
that such matters, when concluded, will have a material impact upon the
financial position of the Group.
27.1 Pending litigation and claims
Investigations and litigation relating to securities issued by BOC PCL
A number of institutional and retail customers have filed various separate
actions against BOC PCL alleging that BOC PCL is guilty of misselling in
relation to securities issued by BOC PCL between 2007 and 2011. Remedies
sought include the return of the money investors paid for these securities.
Claims are currently pending before the courts in Cyprus and in Greece, as
well as the decisions and fines imposed upon BOC PCL in related matters by
Cyprus Securities and Exchange Commission (CySEC) and/or Hellenic Capital
Market Commission (HCMC).
The bonds and capital securities in respect of which claims have been brought
are the following: 2007 Capital Securities, 2008 Convertible Bonds, 2009
Convertible Capital Securities (CCS) and 2011 Convertible Enhanced Capital
Securities (CECS).
BOC PCL is defending these claims, particularly with respect to institutional
investors and retail purchasers who received investment advice from
independent investment advisors. In the case of retail investors, if it can be
demonstrated that the relevant BOC PCL's officers 'persuaded' them to proceed
with the purchase and/or purported to offer 'investment advice', BOC PCL may
face significant difficulties.
To date, a number of cases have been tried in Greece. BOC PCL has appealed
against any such cases which were not ruled in its favour. The resolution of
the claims brought in the courts of Greece is expected to take a number of
years.
So far four capital securities cases have been adjudicated in favour of BOC
PCL and four cases have been adjudicated against BOC PCL at Areios Pagos
(Supreme Court of Greece). The cases that BOC PCL has won will be retried by
the Court of Appeal as per the direction of the Supreme Court. One of the said
cases has already been retried by the Court of Appeal and the ruling was in
favour of BOC PCL. There has been a new petition for annulment against this
decision of the Court of Appeal and the case will be retried before the
Supreme Court in 2023. The four cases that BOC PCL has lost will not be
retried and are therefore deemed as concluded.
In Cyprus nineteen judgments have been issued so far with regards to BOC PCL
capital securities. Thirteen of the said judgments have been issued in favour
of BOC PCL (dismissing the plaintiffs' claims) and six of them against BOC
PCL. BOC PCL has filed appeals with regards to all of the cases where the
judgment was issued against it. In six of the thirteen cases that BOC PCL won,
the plaintiffs have filed an appeal. It is to be noted that the statutory
limitation period for filing claims with respect to this and other matters for
which the cause of action arose prior and up to 31 December 2015, expired on
31 December 2021.
Provision has been made based on management's best estimate of probable
outflows for capital securities related litigation.
Bail‑in related litigation
Depositors
A number of BOC PCL's depositors, who allege that they were adversely affected
by the bail‑in, filed claims against BOC PCL and other parties (such as the
CBC and the Ministry of Finance of Cyprus) including against BOC PCL as the
alleged successor of Laiki Bank on the grounds that, inter alia, the
'Resolution Law of 2013' and the Bail‑in Decrees were in conflict with the
Constitution of the Republic of Cyprus and the European Convention on Human
Rights. They are seeking damages for their alleged losses resulting from the
bail‑in of their deposits. BOC PCL is defending these actions.
BOC PCL has won five cases with regards to bail‑in related litigation (on
failure to follow instructions). The plaintiffs have filed appeals with
respect to two of the said judgments. BOC PCL lost one case with regards to
bail‑in related litigation (on failure to follow instructions) and has filed
an appeal.
BOC PCL also won five bail‑in decree related cases. In summary, the court
ruled that the measures that the government implemented were necessary to
prevent the collapse of the financial sector, which would have detrimental
consequences for the country's economy. Under the circumstances the government
could rely on the doctrine of necessity when it imposed the bail‑in. Up to
the date of the Consolidated Financial Statements only one appeal has been
filed with respect to the above mentioned judgments. BOC PCL lost one Laiki
Bail‑in decree case but it is the opinion of legal advisors of BOC PCL that
this case is a one‑off case which turned on its own particular facts. An
appeal by BOC PCL has been filed with respect to this case.
BOC PCL won two and lost three bail‑in wrongful application related cases.
The appeals that have been filed by BOC PCL are still pending with regards to
this matter. With regards to the cases that BOC PCL won, the plaintiffs have
not filed an appeal.
Shareholders
A number of actions for damages have been filed with the District Courts of
Cyprus alleging either the unconstitutionality of the Resolution Law and the
Bail‑in Decrees, or a misapplication of same by BOC PCL (as regards the way
and methodology whereby such Decrees have been implemented), or that BOC PCL
failed to follow instructions promptly prior to the bail‑in coming into
force. As at the present date, both the Resolution Law and the Bail‑in
Decrees have not been annulled by a court of law and thus remain legally valid
and in effect. BOC PCL contests all of these claims.
Legal position of the Group
All of the above claims are being vigorously disputed by the Group, in close
consultation with the appropriate state and governmental authorities. The
position of the Group is that the Resolution Law and the Decrees take
precedence over all other laws. As matters now stand, both the Resolution Law
and the Decrees issued thereunder are constitutional and lawful, in that they
were properly enacted and have not so far been annulled by any court.
Provident fund case
In December 2015, the Bank of Cyprus Employees Provident Fund (the Provident
Fund) filed an action against BOC PCL claiming €70 million allegedly owed as
part of BOC PCL's contribution by virtue of an agreement with the Union dated
31 December 2011. Based on facts currently known, it is not practicable at
this time for BOC PCL to predict the resolution of this matter, including the
timing or any possible impact on BOC PCL.
Employment litigation
Former employees of the Group have instituted a number of employment claims
including unfair dismissals and one claim for Provident Fund entitlements
against BOC PCL and the Trustees of the Provident Fund. In July 2021 the claim
for Provident Fund entitlements was settled. The Group does not consider that
the pending cases in relation to employment will have a material impact on its
financial position. A judgment has been issued in one of the unfair dismissal
cases and BOC PCL lost. BOC PCL has filed an appeal with respect to this case
and similarly, the plaintiff has also filed an appeal. The facts of this case
are unique and it is not expected to affect the rest of the cases where unfair
dismissal is claimed.
Additionally, a number of former employees have filed claims against BOC PCL
contesting entitlements received relating to the various voluntary exit plans.
As at the reporting date, the Group does not expect that these actions will
have a material impact on its financial position.
Swiss Francs loans litigation in Cyprus and the UK
Α number of actions have been instituted against BOC PCL by borrowers who
obtained loans in foreign currencies (mainly Swiss Francs). The central
allegation in these cases is that BOC PCL misled these borrowers and/or
misrepresented matters, in violation of applicable law. BOC PCL is contesting
the said proceedings. The Group does not expect that these actions will have a
material impact on its financial position.
UK property lending claims
BOC PCL is the defendant in certain proceedings alleging that BOC PCL is
legally responsible for allegedly, inter alia, advancing and misselling loans
for the purchase by UK nationals of property in Cyprus. The proceedings in the
UK are currently stayed in order for the parties to have time to negotiate
possible settlements. The Group does not expect that these negotiations will
lead to outflows for the Group.
Banking business cases
There is a number of banking business cases where the amounts claimed are
significant. These cases primarily concern allegations as to BOC PCL's
standard policies and procedures allegedly resulting to damages and other
losses for the claimants. Further, there are several other banking claims,
where the amounts involved are not as significant. Management has assessed
either the probability of loss as remote and/or does not expect any future
outflows with respect to these cases to have a material impact on the
financial position of the Group. Such matters arise as a result of the Group's
activities and management appropriately assesses the facts and the risks of
each case accordingly.
General criminal investigations and proceedings
The Attorney General and the Cypriot Police (the Police) are conducting
various investigations and inquiries following and relating to the financial
crisis which culminated in March 2013. BOC PCL is cooperating fully with the
Attorney General and the Police and is providing all information requested of
it. Based on the currently available information, the Group is of the view
that any further investigations or claims resulting from these investigations
will not have a material impact on its financial position.
Others
An investigation is in process related to potentially overstated and/or
fictitious claims paid by the non‑life insurance subsidiary of the Group.
The information usually required by IAS 37 'Provisions, Contingent Liabilities
and Contingent Assets' is not disclosed on the grounds that it is expected to
seriously prejudice the outcome of the investigation and/or the possible
taking of legal action. Based on the information available at present,
management considers that it is unlikely for this matter to have a material
adverse impact on the financial position and capital adequacy of the
non‑life insurance subsidiary and thereby the Group, also taking into
account that it is virtually certain that compensations will be received from
a relevant insurance coverage, upon the settlement of any obligation that may
arise.
27.2 Regulatory matters
The Hellenic Capital Market Commission (HCMC) Investigation
The HCMC is currently in the process of investigating matters concerning the
Group's investment in Greek Government Bonds from 2009 to 2011, including,
inter alia, related non‑disclosure of material information in BOC PCL's CCS,
CECS and rights issue prospectuses (tracking the investigation carried out by
CySEC in 2013), Greek government bonds' reclassification, ELA disclosures and
allegations by some investors regarding BOC PCL's non‑compliance with
Markets in Financial Instruments Directive (MiFID) in respect of investors'
direct investments in Greek Government Bonds.
A specific estimate of the outcome of the investigations or of the amount of
possible fines cannot be given at this stage, though it is not expected that
any resulting liability or damages will have a material impact on the
financial position of the Group.
The Cyprus Securities and Exchange Commission (CySEC) Investigations
CySEC has concluded (in two stages) during 2013 and 2014 its investigation
with respect to BOC PCL exposure to Greek Government Bonds and the
non‑disclosure of material information and other corporate governance
deficiencies relating to the said exposure. In this respect, CySEC has issued
two decisions, coming to the conclusion that BOC PCL was in breach of certain
laws regarding disclosure of information. At all times, BOC PCL had filed
recourses before the Administrative Court regarding the decisions of CySEC and
the fines imposed upon it.
In October 2021 the Administrative Court ruled in favour of BOC PCL in
relation to the fine of €160 thousand on the ground of flawed constitution
of the CySEC Board. In May 2022, the Administrative Court (under a different
bench) ruled against BOC PCL in relation to the fine of €950 thousand and
found that the constitution of the CySEC Board was not flawed. In May 2023 the
Administrative Court ruled in favour of BOC PCL in relation to the fine of
€70 thousand on the ground of flawed constitution of the CySEC Board. All
cases are now pending on appeal. Relevant provisions were made in prior years
for the said cases.
As at 30 June 2023 and 31 December 2022 there were no pending CySEC
investigations against BOC PCL.
Central Bank of Cyprus (CBC)
The CBC has carried out certain investigations to assess compliance of BOC PCL
under the anti‑money laundering (AML) legislation which was in place during
years 2008‑2015 and 2015‑2018.
Following the investigations and the on‑site audit findings, the CBC
concluded on 27 January 2021 that in the case of AML legislation 2008‑2015
BOC PCL was in breach of certain articles of the said legislation and prima
facie, failed to act in accordance with certain provisions of the AML/counter
terrorism financing (CTF) Law and the CBC AML/CTF Directive. In October 2021 a
fine of €277 thousand was imposed upon BOC PCL. BOC PCL paid a discounted
fine and has filed a recourse against this decision and fine.
Following the investigation and the on‑site examination, the CBC concluded
with regards to the files and transactions related to years 2015‑2018, that
BOC PCL was in breach of certain articles of the legislation. In December
2021, a fine of €790 thousand was imposed upon BOC PCL. BOC PCL paid a
discounted fine and has filed a recourse against the decision and the fine.
The CBC had conducted an investigation in the past into BOC PCL's issuance of
capital securities and concluded that BOC PCL breached certain regulatory
requirements concerning the issuance of Convertible Capital Securities
(Perpetual) in 2009, but not in relation to the CECS in 2011. The CBC had, in
2013, imposed a fine of €4 thousand upon BOC PCL, who filed a recourse. The
Administrative Court cancelled both the CBC's decision and the fine that was
imposed upon BOC PCL in a respective judgment dated in 2020. CBC decided to
re‑examine this matter and to re‑open the investigation.
Commission for the Protection of Competition Investigation (CPC)
In April 2014, following an investigation which began in 2010, CPC issued a
statement of objections, alleging violations of Cypriot and EU competition law
relating to the activities and/or omissions in respect of card payment
transactions by, among others, BOC PCL and JCC Payment Systems Ltd (JCC), a
card processing business currently 75% owned by BOC PCL. BOC PCL is expecting
the final conclusion of this matter and has provided for it accordingly.
There was also an allegation concerning BOC PCL's arrangements with American
Express, namely that such exclusive arrangements violated Cypriot and EU
competition law. On both matters, the CPC has concluded that BOC PCL (in
common with other banks and JCC) has breached the relevant provisions of the
applicable law for the protection of competition. In May 2017, the CPC imposed
a fine of €18 million upon BOC PCL and BOC PCL filed a recourse against the
decision and the fine. The payment of the fine had been stayed, pending the
final outcome of the recourse. In June 2018, the Administrative Court accepted
BOC PCL's position and cancelled the decision as well as the fine imposed upon
BOC PCL. During 2018, the Attorney General has filed an appeal before the
Supreme court with respect to such decision. Until a judgment is issued by the
Supreme Court, the decision of the CPC remains annulled and there is no
subsisting fine upon BOC PCL. The said appeal is still pending as at 30 June
2023.
In 2019, the CPC initiated an ex officio investigation with respect to unfair
contract terms and into the contractual arrangements/facilities offered by BOC
PCL for the period from 2012 to 2016. To date no charges have been put forward
nor have any formal proceedings been instituted against BOC PCL in this case.
The Group is not aware of any further developments in this case.
Association for the Protection of Bank Borrowers (CYPRODAT)
CYPRODAT filed a complaint with the Commission for the Protection of
Competition (CPC) in January 2022, claiming that BOC PCL and another bank have
concerted in practices regarding the recent revisions of their commissions and
charges. In April 2022, CPC informed BOC PCL of the initiation of an
investigation with respect to this matter but for which no formulation of a
Statement of Objections has been received to date which would indicate the
initiation of formal proceedings.
Consumer Protection Service (CPS)
In July 2017, CPS imposed a fine of €170 thousand upon BOC PCL after
concluding an ex officio investigation regarding some terms in both BOC PCL's
and Marfin Popular Bank's loan documentation, that were found to constitute
unfair commercial practices. Decisions of the CPS (according to rulings of the
Administrative Court) are not binding but merely an expression of opinion. BOC
PCL has filed a recourse before the Administrative Court against this
decision. The Administrative Court has issued its judgment in 2022 in favour
of BOC PCL, and the CPS decision along with the fine have been cancelled. An
appeal has been submitted by CPS with regards to this judgment, which is still
pending as at 30 June 2023.
In March 2020, BOC PCL has been served with an application by the director of
CPS through the Attorney General seeking for an order of the court, with
immediate effect, the result of which will be for BOC PCL to cease the use of
a number of terms in the contracts of BOC PCL which are deemed to be unfair
under the said order. The said terms relate to contracts that had been signed
during 2006‑2007. Furthermore, the said application seeks for an order
ordering BOC PCL to undertake measures to remedy the situation. BOC PCL will
take all necessary steps for the protection of its interests. This matter is
still pending before the court as at 30 June 2023.
In April 2021, the Director of CPS filed an application for the issuance of a
court order against BOC PCL, prohibiting the use of a number of contractual
terms included in BOC PCL's consumer contracts and requiring the amendment of
any such contracts (present and future) so as to remove such unfair terms.
This matter is still pending before the court as at 30 June 2023.
BOC PCL received a letter in July 2021 from CPS, initiating an ex officio
investigation under the Distance Marketing of Financial Services to Consumers
Law, with respect to the services and products of BOC PCL for which the
contract between BOC PCL and the consumer is entered into online via BOC PCL's
website.
BOC PCL received another letter in July 2021 from CPS, initiating an
investigation with respect to an alleged wrong commercial practice of BOC PCL
of promoting a product.
There have been no further developments on the aforementioned investigations
since.
Cyprus Consumers' Association (CCA)
In March 2021, BOC PCL was served with an application filed by the CCA for the
issuance of a court order prohibiting the use of a number of contractual terms
included in BOC PCL's consumer contracts and requiring the amendment of any
such contracts (present and future) so as to remove such terms deemed as
unfair. The said contractual terms were determined as unfair pursuant to the
decisions issued by the Consumer Protection Service of the Ministry of Energy,
Commerce, Industry and Tourism against BOC PCL in 2016 and 2017. BOC PCL will
take all necessary steps for the protection of its interests. This matter is
still pending before the court as at 30 June 2023.
The new Law on Consumer Protection brings under one umbrella the existing
legislation on unfair contract terms and practices with some enhanced powers
vested in the Consumer Protection Service, i.e. power to impose increased
fines which are immediately payable. The new Law on Consumer Protection has a
retrospective effect in that it also applies to all contracts/practices
entered into and/or terminated prior to this law coming into effect as opposed
to contracts/practices which are only entered into/adopted as from the date of
publication of the new Law on Consumer Protection.
There are many factors that may affect the range of outcomes, and the
resulting financial impact, of these matters, is unknown.
UK regulatory matters
As part of the agreement for the sale of Bank of Cyprus UK Ltd, a liability
with regards to UK regulatory matters remains an obligation for settlement by
the Group. The level of the provision represents the best estimate of all
probable outflows arising from customer redress based on information available
to management.
27.3 Οther matters
Other matters include among others, provisions for various other open
examination requests by governmental and other public bodies, legal matters
and provisions for warranties and indemnities related to the disposal process
of certain operations of the Group.
The provisions for pending litigation, claims, regulatory and other matters
described above and provided in the tables below do not include insurance
claims arising in the ordinary course of business of the Group's insurance
subsidiaries as these are included in 'Insurance liabilities'.
27.4 Provisions for pending litigation, claims, regulatory and
other matters
Pending litigation and claims Regulatory matters Other matters Total
(Note 27.1)
(Note 27.2)
(Note 27.3)
2023 €000 €000 €000 €000
1 January 63,947 14,918 48,742 127,607
Net increase in provisions including unwinding of discount 14,682 - 4,095 18,777
Utilisation of provisions (14,289) - - (14,289)
Release of provisions (4,629) - - (4,629)
Transfer - - 767 767
Foreign exchange adjustments - - 34
34
30 June 59,711 14,952 53,604 128,267
Pending litigation and claims Regulatory matters Other matters Total
(Note 27.1)
(Note 27.2)
(Note 27.3)
2022 €000 €000 €000 €000
1 January 57,844 16,415 29,849 104,108
Net increase in provisions including unwinding of discount 1,086 950 - 2,036
Utilisation of provisions (78) (759) - (837)
Release of provisions (392) - (100) (492)
Foreign exchange adjustments - (22) - (22)
30 June 58,460 16,584 29,749 104,793
Provisions for pending litigation, claims, regulatory and other matters
recorded in the consolidated income statement during the six months ended 30
June 2023 amount to €14,148 thousand (30 June 2022: €594 thousand). The
increase in the six months ended 30 June 2023 is driven by the revised
approach on pending litigation fees and the progress on legal cases, as well
as higher one‑off provisions for other matters in relation to the run‑down
and disposal of the Group's legacy and non‑core operations.
Some information required by the IAS 37 'Provisions, Contingent Liabilities
and Contingent Assets' is not disclosed on the grounds that it can be expected
to prejudice seriously the outcome of the litigation or the outcome of the
negotiation in relation to provisions for warranties and indemnities related
to the disposal process of certain operations of the Group.
An increase by 5% in the probability of loss rate for pending litigation and
claims (31 December 2022: 5%) with all other variables held constant, would
lead to an increase in the actual provision by €2,236 thousand at 30 June
2023 (31 December 2022: increase by €2,821 thousand).
27.5 Contingent liabilities and commitments
The Group, as part of its disposal process of certain of its operations, has
provided various representations, warranties and indemnities to the buyers.
These relate to, among other things, the ownership of the loans, the validity
of the liens, tax exposures and other matters agreed with the buyers. As a
result, the Group may be obliged to compensate the buyers in the event of a
valid claim by the buyers with respect to the above representations,
warranties and indemnities.
A provision has been recognised, based on management's best estimate of
probable outflows, where it was assessed that such an outflow is probable.
Capital commitments for the acquisition of property, equipment and intangible
assets as at 30 June 2023 amount to €22,159 thousand (31 December 2022:
€10,647 thousand).
28. Cash and cash equivalents
Cash and cash equivalents comprise:
30 June 31 December 2022
2023
€000 €000
Cash and non‑obligatory balances with central banks 8,988,967 9,452,721
Loans and advances to banks with original maturity less than three months 363,948 133,432
9,352,915 9,586,153
Analysis of cash and balances with central banks and loans and advances to
banks
30 June 31 December 2022
2023
€000 €000
Cash and non‑obligatory balances with central banks 8,988,967 9,452,721
Obligatory balances with central banks 138,462 114,537
Total cash and balances with central banks 9,127,429 9,567,258
Loans and advances to banks with original maturity less than three months 363,948 133,432
Restricted loans and advances to banks 67,864 71,379
Total loans and advances to banks 431,812 204,811
Restricted loans and advances to banks include collaterals under derivative
transactions of €1,750 thousand (31 December 2022: €7,380 thousand) which
are not immediately available for use by the Group, but are released once the
transactions are terminated.
29. Analysis of assets and liabilities by expected maturity
30 June 2023 31 December 2022 (restated)
Less than Over one Total Less than Over one Total
one year
year
one year
year
Assets €000 €000 €000 €000 €000 €000
Cash and balances with central banks 8,988,967 138,462 9,127,429 9,452,721 114,537 9,567,258
Loans and advances to banks 363,948 67,864 431,812 133,432 71,379 204,811
Derivative financial assets 7,189 42,113 49,302 904 47,249 48,153
Investments 821,389 2,508,318 3,329,707 460,070 2,243,633 2,703,703
Loans and advances to customers 1,116,605 8,891,214 10,007,819 880,158 9,073,094 9,953,252
Life insurance business assets attributable to policyholders 16,787 571,095 587,882 15,486 526,835 542,321
Prepayments, accrued income and other assets 267,403 342,204 609,607 256,077 352,977 609,054
Stock of property 202,887 742,944 945,831 301,275 739,757 1,041,032
Investment properties 14,385 59,954 74,339 24,749 60,350 85,099
Deferred tax assets 37,909 190,044 227,953 37,909 190,025 227,934
Property, equipment and intangible assets - 314,956 314,956 - 305,924 305,924
11,837,469 13,869,168 25,706,637 11,562,781 13,725,760 25,288,541
Liabilities
Deposits by banks 155,885 292,828 448,713 191,635 316,023 507,658
Funding from central banks 2,004,480 - 2,004,480 1,976,674 - 1,976,674
Derivative financial liabilities 4,614 13,777 18,391 10,538 5,631 16,169
Customer deposits 5,945,245 13,220,910 19,166,155 5,893,802 13,104,517 18,998,319
Insurance liabilities 87,461 544,456 631,917 88,647 511,345 599,992
Accruals, deferred income and other liabilities and provisions for pending 382,818 175,034 557,852 295,678 211,111 506,789
litigation, claims, regulatory and other matters
Debt securities in issue and subordinated liabilities - 601,324 601,324 - 599,740 599,740
Deferred tax liabilities 1,622 32,996 34,618 1,207 33,427 34,634
8,582,125 14,881,325 23,463,450 8,458,181 14,781,794 23,239,975
The main assumptions used in determining the expected maturity of assets and
liabilities are set out below.
Cash and balances with central banks are classified in the relevant time band
based on the contractual maturity, with the exception of obligatory balances
with central banks which are classified in the 'Over one year' time band.
The investments are classified in the relevant time band based on expectations
as to their realisation. In most cases this is the maturity date, unless there
is an indication that the maturity will be prolonged or there is an intention
to sell, roll or replace the security with a similar one.
Performing loans and advances to customers in Cyprus are classified based on
the contractual repayment schedule. Overdraft accounts are classified in the
'Over one year' time band. The Stage 3 Loans are classified in the 'Over one
year' time band except cash flows from expected receipts which are included
within time bands, according to historic amounts of receipts in the recent
months.
Stock of property is classified in the relevant time band based on
expectations as to its realisation.
A percentage of customer deposits maturing within one year is classified in
the 'Over one year' time band, based on the observed behavioural analysis.
The expected maturity of all prepayments, accrued income and other assets and
accruals, deferred income and other liabilities is the same as their
contractual maturity. If they do not have a contractual maturity, the expected
maturity is based on the timing the asset is expected to be realised and the
liability is expected to be settled.
30. Risk management ‑ Credit risk
In the ordinary course of its business the Group is exposed to credit risk
which is monitored through various control mechanisms across all Group
entities in order to prevent undue risk concentrations and to price credit
facilities and products on a risk‑adjusted basis.
Credit risk is the risk that arises from the possible failure of one or more
customers to discharge their credit obligations towards the Group.
The Credit Risk Management department, in co‑operation with the Credit Risk
Control and Monitoring department, set the Group's credit risk policies and
monitor compliance with credit risk policies applicable to each business line
and the quality of the Group's loans and advances portfolio through the timely
credit risk assessment of customers. The credit exposures of related accounts
are aggregated and monitored on a consolidated basis.
The Credit Risk Management department, in co‑operation with the Credit Risk
Control and Monitoring department, also safeguard the effective management of
credit risk at all stages of the credit cycle, monitor the quality of
decisions and processes and ensure that the credit sanctioning function is
being properly managed.
The credit policies are complemented by the methods used for the assessment of
the customers' creditworthiness (credit rating and credit scoring systems).
The loan portfolio is analysed on the basis of the customers'
creditworthiness, their economic sector of activity and geographical
concentration.
The credit risk exposure of the Group is diversified across the various
industry sectors of the economy. Credit Risk Management department determines
concentration limits for each industry sector, sets prohibited sectors and
defines sectors which may require prior approval before credit applications
are submitted.
The Market & Liquidity Risk department assesses the credit risk relating
to exposures to Credit Institutions and Governments and other debt securities.
Models and limits are presented to and approved by the Board of Directors,
through the relevant authority based on the authorisation level limits.
The Group's significant judgements, estimates and assumptions regarding the
determination of the level of provisions for impairment are described in Note
6 'Significant and other judgements, estimates and assumptions' of these
Consolidated Financial Statements.
30.1 Maximum exposure to credit risk and collateral and other
credit enhancements
Loans and advances to customers
The Credit Risk Management department determines the level and type of
collateral and other credit enhancements required for the granting of new
loans to customers.
The main types of collateral obtained by the Group are mortgages on real
estate, cash collateral/blocked deposits, bank guarantees, government
guarantees, pledges of equity securities and debt instruments of public
companies, fixed and floating charges over corporate assets, assignment of
life insurance policies, assignment of rights on contracts of sale and
personal and corporate guarantees.
The Group regularly monitors the changes in the market value of the collateral
and, where necessary, requests the pledging of additional collateral in
accordance with the relevant agreement.
Off‑balance sheet exposures
The Group offers guarantee facilities to its customers under which the Group
may be required to make payments on their behalf and enters into commitments
to extend credit lines to secure their liquidity needs.
Letters of credit and guarantee facilities (including standby letters of
credit) commit the Group to make payments on behalf of customers in the event
of a specific act, generally related to the import or export of goods. Such
commitments expose the Group to risks similar to those of loans and advances
and are therefore monitored by the same policies and control processes.
Other financial instruments
Collateral held as security for financial assets other than loans and advances
to customers is determined by the nature of the financial instrument. Debt
securities and other eligible bills are generally unsecured with the exception
of asset‑backed securities and similar instruments, which are secured by
pools of financial assets. In addition, some debt securities are
government‑guaranteed.
The Group has chosen the ISDA Master Agreement for documenting its derivatives
activity. It provides the contractual framework within which dealing activity
across a full range of over‑the‑counter (OTC) products is conducted and
contractually binds both parties to apply close‑out netting across all
outstanding transactions covered by an agreement, if either party defaults. In
most cases the parties execute a Credit Support Annex (CSA) in conjunction
with the ISDA Master Agreement. Under a CSA, the collateral is passed between
the parties in order to mitigate the market contingent counterparty risk
inherent in their open positions. As at 30 June 2023, the majority of
derivative exposures are covered by ISDA netting arrangements. A detailed
analysis of derivative asset and liability exposures is available in Note 16.
Information about the Group's collaterals under derivative transactions is
provided in Note 28.
Settlement risk arises in any situation where a payment in cash or securities
is made in the expectation of a corresponding receipt in securities or cash.
The Group sets daily settlement limits for each counterparty. Settlement
risk is mitigated when transactions are effected via established payment
systems or on a delivery upon payment basis.
Maximum Exposure to credit risk
The table below presents the maximum exposure to credit risk before taking
into account the tangible and measurable collateral and credit enhancements
held.
30 June 31 December 2022
2023
(restated)
€000 €000
Balances with central banks 9,039,067 9,475,541
Loans and advances to banks (Note 28) 431,812 204,811
Other non‑equity securities at FVPL (Note 15) 3,364 8,968
Debt securities classified at amortised cost and FVOCI (Note 15) 3,178,127 2,499,894
Derivative financial instruments (Note 16) 49,302 48,153
Loans and advances to customers (Note 18) 10,007,819 9,953,252
Debtors (Note 20) 32,363 29,220
Reinsurers' share of insurance contract liabilities (Note 20) 50,580 46,781
Deferred purchase payment consideration (Note 20) 320,655 311,523
Other assets (Note 20) 65,919 57,183
On‑balance sheet total 23,179,008 22,635,326
Contingent liabilities
Acceptances and endorsements 3,034 5,175
Guarantees 696,362 651,219
Commitments
Documentary credits 3,399 17,624
Undrawn formal stand‑by facilities, credit lines and other commitments to 1,957,084 1,909,487
lend
Off‑balance sheet total 2,659,879 2,583,505
25,838,887 25,218,831
30.2 Credit risk concentration of loans and advances to customers
There are restrictions on loan concentrations which are imposed by the Banking
Law in Cyprus, the relevant CBC Directives and CRR. The Group's Risk Appetite
Statement may impose stricter concentration limits which are monitored by the
Group.
The credit risk concentration, which is based on industry (economic activity)
and business line, as well as the geographical concentration, is presented
below.
The geographical analysis, for credit risk concentration purposes, is based on
the Group's Country Risk Policy which is followed for monitoring the Group's
exposures. Market and Liquidity Risk department is responsible for analysing
the country risk of exposures. ALCO reviews the country risk of exposures on a
quarterly basis and the Board, through its Risk Committee, reviews the country
risk of exposures and any breaches of country risk limits on a regular basis
and at least annually.
The table below presents the geographical concentration of loans and advances
to customers by country of risk based on the country of residency for
individuals and the country of registration for companies.
30 June 2023 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000
Trade 915,396 337 38 - 38 915,809
Manufacturing 310,474 44,480 - - 27,251 382,205
Hotels and catering 962,779 27,120 37,020 - 39,863 1,066,782
Construction 526,060 8,677 18 1 373 535,129
Real estate 931,771 101,245 1,960 - 52,189 1,087,165
Private individuals 4,534,353 11,616 65,551 15,684 51,257 4,678,461
Professional and other services 547,629 621 5,280 336 41,780 595,646
Shipping 22,858 24 - - 209,886 232,768
Other sectors 469,361 - 1 3 32,005 501,370
9,220,681 194,120 109,868 16,024 454,642 9,995,335
30 June 2023 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
Corporate and Large corporate 3,450,891 28,255 - 333 190 3,479,669
International corporate 100,541 157,853 43,818 - 392,610 694,822
SMEs 982,114 529 1,215 - 2,372 986,230
Retail
‑ housing 3,315,768 2,486 32,680 91 17,658 3,368,683
‑ consumer, credit cards and other 926,010 793 561 - 822 928,186
Restructuring
‑ corporate 52,376 - 975 - 65 53,416
‑ SMEs 39,320 - 397 71 - 39,788
‑ retail housing 67,332 101 2,002 275 180 69,890
‑ retail other 23,723 36 18 - 22 23,799
Recoveries
‑ corporate 17,060 - 458 176 943 18,637
‑ SMEs 25,994 - 1,039 2,147 1,898 31,078
‑ retail housing 61,682 210 17,670 2,981 7,967 90,510
‑ retail other 29,889 24 1,336 274 433 31,956
International business unit 88,667 1,672 7,607 9,676 24,226 131,848
Wealth management 39,314 2,161 92 - 5,256 46,823
9,220,681 194,120 109,868 16,024 454,642 9,995,335
31 December 2022 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By economic activity €000 €000 €000 €000 €000 €000
Trade 922,093 384 37 - 35 922,549
Manufacturing 323,074 44,978 - - 27,943 395,995
Hotels and catering 928,346 16,565 35,614 - 40,086 1,020,611
Construction 545,421 8,955 23 1 1,985 556,385
Real estate 978,708 94,823 1,866 - 51,617 1,127,014
Private individuals 4,496,081 11,146 73,120 19,103 54,985 4,654,435
Professional and other services 551,269 980 5,311 313 37,830 595,703
Shipping 13,338 - - - 173,830 187,168
Other sectors 427,535 2 - 3 29,935 457,475
9,185,865 177,833 115,971 19,420 418,246 9,917,335
31 December 2022 Cyprus Greece United Kingdom Russia Other countries Gross loans at amortised cost
By business line €000 €000 €000 €000 €000 €000
Corporate and Large corporate 3,380,542 17,781 50 312 102 3,398,787
International corporate 139,813 152,143 42,327 - 351,025 685,308
SMEs 1,021,950 1,036 1,451 - 4,174 1,028,611
Retail
‑ housing 3,272,253 2,450 36,839 186 18,906 3,330,634
‑ consumer, credit cards and other 885,558 856 576 1 905 887,896
Restructuring
‑ corporate 66,151 - 869 - 932 67,952
‑ SMEs 48,027 - 432 158 384 49,001
‑ retail housing 70,283 104 1,841 291 114 72,633
‑ retail other 24,093 16 21 192 21 24,343
Recoveries
‑ corporate 19,063 - 452 172 32 19,719
‑ SMEs 26,150 - 1,117 2,664 1,774 31,705
‑ retail housing 69,790 260 19,778 3,431 9,736 102,995
‑ retail other 31,967 12 1,265 49 337 33,630
International business unit 90,652 1,722 8,953 11,964 24,583 137,874
Wealth management 39,573 1,453 - - 5,221 46,247
9,185,865 177,833 115,971 19,420 418,246 9,917,335
The loans and advances to customers include lending exposures in Cyprus with
collaterals in Greece with a carrying value as at 30 June 2023 of €134,730
thousand (31 December 2022: €106,701 thousand).
The loans and advances to customers reported within 'Other countries' as at 30
June 2023 include exposures of €2,2 million in Ukraine (31 December 2022:
€2,6 million).
30.3 Analysis of loans and advances to customers
The movement of the gross loans and advances to customers at amortised cost by
staging, (30 June 2022: including the loans and advances to customers
classified as held for sale), is presented in the tables below:
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2023 €000 €000 €000 €000 €000
1 January 7,867,256 1,565,603 371,018 113,458 9,917,335
Transfers to stage 1 599,556 (599,556) - - -
Transfers to stage 2 (415,621) 435,606 (19,985) - -
Transfers to stage 3 (8,755) (12,000) 20,755 - -
Foreign exchange and other adjustments - -
(25) 21 (4)
Write offs (188) (310) (17,728) (2,958) (21,184)
Interest accrued and other adjustments 158,717 26,902 22,496 3,339 211,454
New loans originated or purchased and drawdowns of existing facilities 969,848 24,136 994,906
558 364
Loans derecognised or repaid (excluding write offs) (974,108) (84,076) (41,624) (11,439) (1,111,247)
Changes to contractual cash flows due to modifications 1,499 (1,719) (170)
816 426
Acquisition of Velocity 2 portfolio - - - 3,649 3,649
30 June 8,198,179 1,357,121 333,792 106,243 9,995,335
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2022 €000 €000 €000 €000 €000
1 January 7,418,695 1,701,255 1,047,802 228,572 10,396,324
Transfers to stage 1 292,741 (292,741) - - -
Transfers to stage 2 (405,422) 429,065 (23,643) - -
Transfers to stage 3 (4,782) (19,409) 24,191 - -
Foreign exchange and other adjustments (24) - 905 - 881
Write offs (398) (295) (100,301) (17,522) (118,516)
Interest accrued and other adjustments 94,167 38,719 37,154 13,327 183,367
New loans originated or purchased and drawdowns of existing facilities 1,060,453 46,984 200 852 1,108,489
Loans derecognised or repaid (excluding write offs) (763,291) (103,101) (56,132) (25,008) (947,532)
Changes to contractual cash flows due to modifications (798) 1,150 (3,074) (119) (2,841)
30 June 7,691,341 1,801,627 927,102 200,102 10,620,172
For revolving facilities, overdrafts and credit cards the net positive change
in balance by stage excluding write‑offs is reported in 'New loans
originated' and the net negative change is reported in 'Loans derecognised or
repaid'.
The analysis of gross loans and advances to customers at amortised cost by
staging and by business line concentration is included in Note 18.
During the six months ended 30 June 2023, the Group purchased back certain
loans disposed in 2020 as part of Velocity 2. The loans, which relate
primarily to retail unsecured facilities, were classified as POCI and have a
net book value of €1,257 thousand as at 30 June 2023.
30.4 Credit losses of loans and advances to customers
The movement in ECL of loans and advances to customers (30 June 2022:
including the ECL for loans and advances to customers held for sale), is as
follows:
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2023 €000 €000 €000 €000 €000
1 January 22,288 27,041 113,573 15,540 178,442
Transfers to stage 1 8,441 (8,441) - - -
Transfers to stage 2 (933) 4,583 (3,650) - -
Transfers to stage 3 (455) - -
(62) 517
Impact on transfer between stages during the period* (4,696) 2,670 2,572
(2) 544
Foreign exchange and other adjustments - -
2 10 12
Write offs (188) (310) (17,728) (2,958) (21,184)
Interest (provided) not recognised in the income statement - - 1,653 2,117
464
New loans originated or purchased* 1,124 - - 1,128
4
Loans derecognised or repaid (excluding write offs)* (771) (159) (308) (241) (1,479)
Write offs* 3,171 4,208
170 244 623
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL (3,514) 8,466 24,083 5,005 34,040
calculations*
Changes to contractual cash flows due to modifications not resulting in (601) (176)
derecognition* 498 352 73
30 June 2023 21,258 34,139 124,245 18,259 197,901
Individually assessed 8,928 11,882 58,998 11,640 91,448
Collectively assessed 12,330 22,257 65,247 6,619 106,453
21,258 34,139 124,245 18,259 197,901
* Individual components of the 'Impairment net of reversals on loans and
advances to customers' (Note 12).
The impairment loss for the six months ended 30 June 2023 was driven mainly
from additional net credit losses of €11 million recorded on NPEs as part of
the Group's de‑risking activities and additional ECL charge of €9 million
following the overlays applied during the period, as explained in Note 6.2.
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2022 €000 €000 €000 €000 €000
1 January 15,457 29,383 478,796 67,781 591,417
Transfers to stage 1 4,837 (4,837) - - -
Transfers to stage 2 (1,355) 5,604 (4,249) - -
Transfers to stage 3 (591) - -
(34) 625
Impact on transfer between stages during the period* (4,177) 5,205
2 (41) 989
Foreign exchange and other adjustments - - 1,406 - 1,406
Write offs (398) (295) (100,781) (17,522) (118,996)
Interest (provided) not recognised in the income statement - - 7,697 1,471 9,168
New loans originated or purchased* 1,985 - - 2,012
27
Loans derecognised or repaid (excluding write offs)* (254) (830) (7,779) (1,490) (10,353)
Write offs* 6,565 7,875
380 196 734
Changes to models and inputs (changes in PDs, LGDs and EADs) used for ECL (3,302) 28,536 4,162 30,021
calculations* 625
Changes to contractual cash flows due to modifications not resulting in (158) 1,685 (3,755) (261) (2,489)
derecognition*
30 June 2022 16,908 27,015 412,266 54,861 511,050
Individually assessed 6,380 12,327 63,636 4,530 86,873
Collectively assessed 10,528 14,688 348,630 50,331 424,177
16,908 27,015 412,266 54,861 511,050
The analysis of credit losses of loans and advances to customers by business
line is presented in the table below:
Stage 1 Stage 2 Stage 3 POCI Total
30 June 2023 €000 €000 €000 €000 €000
Corporate and Large corporate 12,277 12,871 31,053 2,277 58,478
International corporate
827 1 37 5 870
SMEs 2,299 2,741 5,900
575 285
Retail
‑ housing 2,111 7,144 4,307 14,119
557
‑ consumer, credit cards and other 3,231 7,791 5,294 1,224 17,540
Restructuring
‑ corporate 9,157 9,764 19,410
13 476
‑ SMEs 1,115 6,042 8,118
229 732
‑ retail housing 1,245 13,778 15,380
117 240
‑ retail other 8,417 9,668
71 570 610
Recoveries
‑ corporate - - 8,630 8,937
307
‑ SMEs - - 13,106 13,278
172
‑ retail housing - - 15,984 1,241 17,225
‑ retail other - - 7,673 8,507
834
International business unit
69 165 191 6 431
Wealth management
14 20 1 5 40
21,258 34,139 124,245 18,259 197,901
Stage 1 Stage 2 Stage 3 POCI Total
31 December 2022 €000 €000 €000 €000 €000
Corporate and Large corporate 13,997 12,096 28,951 1,498 56,542
International corporate
567 5 36 4 612
SMEs 2,444 3,009 1,998 7,665
214
Retail
‑ housing 2,378 2,738 5,146 10,660
398
‑ consumer, credit cards and other 2,552 4,794 5,763 1,020 14,129
Restructuring
‑ corporate 2,133 7,481 9,005 18,641
22
‑ SMEs 9,157 10,788
184 706 741
‑ retail housing 9,222 10,270
19 682 347
‑ retail other 7,309 8,387
29 536 513
Recoveries
‑ corporate - - 7,917 8,304
387
‑ SMEs - - 11,096 11,384
288
‑ retail housing - - 11,937 12,588
651
‑ retail other - - 7,494 7,959
465
International business unit
73 332 65 5 475
Wealth management
23 10 1 4 38
22,288 27,041 113,573 15,540 178,442
During the six months ended 30 June 2023 the total non‑contractual
write‑offs recorded by the Group amounted to €11,582 thousand (30 June
2022: €98,625 thousand). The contractual amount outstanding on financial
assets that were written off during the six months ended 30 June 2023 and that
are still subject to enforcement activity is €100,687 thousand (31 December
2022: €972,621 thousand).
For the calculation of expected credit losses three scenarios were used; base,
adverse and favourable with 50%, 30% and 20% probability respectively.
For Stage 3 customers, the base scenario focuses on the following variables,
which are based on the specific facts and circumstances of each customer: the
operational cash flows, the timing of recovery of collaterals and the haircuts
from the realisation of collateral. The base scenario is used to derive
additional favourable and adverse scenarios. Under the adverse scenario
operational cash flows are decreased by 50%, applied haircuts on real estate
collateral are increased by 50% and the timing of recovery of collaterals is
increased by one year with reference to the baseline scenario. Under the
favourable scenario, applied haircuts are decreased by 5%, with no change in
the recovery period with reference to the baseline scenario. Assumptions used
in estimating expected future cash flows (including cash flows that may result
from the realisation of collateral) reflect current and expected future
economic conditions and are generally consistent with those used in the Stage
3 collectively assessed exposures.
The above assumptions are also influenced by the ongoing regulatory dialogue
BOC PCL maintains with its lead regulator, the ECB, and other regulatory
guidance and interpretations issued by various regulatory and industry bodies
such as the ECB and the EBA, which provide guidance and expectations as to
relevant definitions and the treatment/classification of certain
parameters/assumptions used in the estimation of provisions.
Any changes in these assumptions or difference between assumptions made and
actual results could result in significant changes in the estimated amount of
expected credit losses of loans and advances to customers.
Sensitivity analysis
The Group has performed sensitivity analysis relating to the loan portfolio in
Cyprus, which represents more than 99% of the total loan portfolio of the
Group with reference date 30 June 2023 and 31 December 2022.
The Group has applied sensitivity analysis to the below parameters and the
impact on the ECL, for both individually and collectively assessed ECL
calculations, is presented in the table below:
Increase/(decrease) on ECL for loans and advances to customers at amortised
cost
30 June 31 December 2022
2023
€000 €000
Increase the adverse weight by 5% and decrease the favourable weight by 5%
1,899 1,999
Decrease the adverse weight by 5% and increase the favourable weight by 5%
(1,874) (2,077)
Increase the expected recovery period by 1 year
5,210 4,955
Decrease the expected recovery period by 1 year
(4,610) (4,344)
Increase the collateral realisation haircut by 5%
9,659 11,335
Decrease the collateral realisation haircut by 5%
(8,399) (8,930)
Increase in the PDs of stages 1 and 2 by 20%*
7,808 7,367
Decrease in the PDs of stages 1 and 2 by 20%*
(6,687) (6,964)
The increase/(decrease) on ECL, for loans and advances to customers at
amortised cost, is further analysed, per stage, in the table below:
Stage 1 Stage 2 Stage 3 Total
30 June 2023 €000 €000 €000 €000
Increase the adverse weight by 5% and decrease the favourable weight by 5% 266 300 1,333 1,899
Decrease the adverse weight by 5% and increase the favourable weight by 5% (278) (263) (1,333) (1,874)
Increase the expected recovery period by 1 year 838 1,776 2,596 5,210
Decrease the expected recovery period by 1 year (784) (1,541) (2,285) (4,610)
Increase the collateral realisation haircut by 5% 1,231 2,464 5,964 9,659
Decrease the collateral realisation haircut by 5% (1,033) (1,966) (5,400) (8,399)
Increase in the PDs of stages 1 and 2 by 20%* 2,105 5,703 - 7,808
Decrease in the PDs of stages 1 and 2 by 20%* (1,857) (4,830) - (6,687)
Stage 1 Stage 2 Stage 3 Total
31 December 2022 €000 €000 €000 €000
Increase the adverse weight by 5% and decrease the favourable weight by 5% 175 321 1,503 1,999
Decrease the adverse weight by 5% and increase the favourable weight by 5% (139) (435) (1,503) (2,077)
Increase the expected recovery period by 1 year 552 1,590 2,813 4,955
Decrease the expected recovery period by 1 year (495) (1,374) (2,475) (4,344)
Increase the collateral realisation haircut by 5% 1,036 2,747 7,552 11,335
Decrease the collateral realisation haircut by 5% (842) (2,021) (6,067) (8,930)
Increase in the PDs of stages 1 and 2 by 20%* 406 6,961 - 7,367
Decrease in the PDs of stages 1 and 2 by 20%* (2,217) (4,747) - (6,964)
*The impact on the ECL also includes the transfer between stages of the loans
and advances to customers following the increase/decrease in the PD.
The sensitivity analysis performed on the collateral realisation haircut and
its impact on the ECL by business line is presented in the table below:
Increase the collateral realisation haircut by 5% Decrease the collateral realisation haircut by 5% Increase the collateral realisation haircut by 5% Decrease the collateral realisation haircut by 5%
30 June 30 June 31 December 2022 31 December 2022
2023
2023
€000 €000 €000 €000
Corporate and Large corporate 2,415 (2,080) 2,322 (1,478)
International corporate 109 (91)
68 (30)
SMEs 401 (331) (409)
487
Retail
‑ housing 1,163 (986) 1,260 (1,085)
‑ consumer, credit cards and other 421 (379) (457)
527
Restructuring
‑ corporate 742 (882) 1,253 (1,333)
‑ SMEs 401 (387) (633)
628
‑ retail housing 832 (728) (738)
824
‑ retail other 270 (238) (287)
324
Recoveries
‑ corporate 511 (547) (665)
720
‑ SMEs 904 (785) (819)
948
‑ retail housing 1,027 (706) 1,378 (690)
‑ retail other 441 (243) (255)
540
International business unit 21 (16)
53 (49)
Wealth management 1 -
3 (2)
9,659 (8,399) 11,335 (8,930)
30.5 Currency concentration of loans and advances to customers
The following table presents the currency concentration of the Group's loans
and advances at amortised cost.
30 June 31 December
2023
2022
Gross loans at amortised cost €000 €000
Euro 9,502,915 9,456,220
US Dollar 369,495 334,663
British Pound 90,278 89,244
Russian Rouble 333 312
Swiss Franc 31,385 35,430
Other currencies 929 1,466
9,995,335 9,917,335
30.6 Forbearance/Restructuring
Forborne/restructured loans are those loans that have been modified because
the borrower is considered unable to meet the terms and conditions of the
contract due to financial difficulties. Taking into consideration these
difficulties, the Group decides to modify the terms and conditions of the
contract to provide the borrower with the ability to service the debt or
refinance the contract, either partially or fully.
The practice of extending forbearance/restructuring measures constitutes a
grant of a concession whether temporarily or permanently to that borrower. A
concession may involve restructuring the contractual terms of a debt or
payment in some form other than cash, such as an arrangement whereby the
borrower transfers collateral pledged to the Group.
Forborne/restructured loans and advances are those facilities for which the
Group has modified the repayment programme (e.g. provision of a grace period,
suspension of the obligation to repay one or more instalments, reduction in
the instalment amount and/or elimination of overdue instalments relating to
capital or interest).
For an account to qualify for forbearance/restructuring it must meet certain
criteria including the viability of the customer. The extent to which the
Group reschedules accounts that are eligible under its existing policies may
vary depending on its view of the prevailing economic conditions and other
factors which may change from year to year. In addition, exceptions to
policies and practices may be allowed in specific situations in response to
legal or regulatory requirements.
Forbearance/restructuring activities may include measures that restructure the
borrower's business (operational restructuring) and/or measures that
restructure the borrower's financing (financial restructuring).
Forbearance/restructuring options may be of a short or long‑term nature or a
combination thereof. The Group has developed and deployed sustainable
restructuring solutions, which are suitable for the borrower and acceptable
for the Group.
Short‑term restructuring solutions are defined as restructured repayment
solutions of duration of less than two years. In the case of loans for the
construction of commercial property and project finance, a short‑term
solution may not exceed one year.
Short‑term restructuring solutions can include the following:
i. Suspension of capital or capital and interest: granting to the
borrower a grace period in the payment of capital (i.e. during this period
only interest is paid) or capital and interest, for a specific period of time.
ii. Reduced payments: decrease of the amount of repayment instalments
over a defined short‑term period in order to accommodate the borrower's new
cash flow position.
iii. Arrears and/or interest capitalisation: capitalisation of the arrears
and of any unpaid interest to the outstanding principal balance for repayment
under a rescheduled program.
Long‑term restructuring solutions can include the following:
i. Interest rate reduction: permanent or temporary reduction of interest
rate (fixed or variable) into a fair and sustainable rate.
ii. Extension of maturity: extension of the maturity of the loan which
allows a reduction in instalment amounts by spreading the repayments over a
longer period.
iii. Sale of Assets: Part of the restructuring can be the agreement with
the borrower for immediate or over time sale of assets (mainly real estate) to
reduce borrowing.
iv. Modification of existing terms of previous decisions: In the context
of the new sustainable settlement/restructuring solution, review any terms of
previous decisions that may not be met.
v. Consolidation/refinancing of existing facilities: In cases where the
borrower maintains several separate loans with different collaterals, these
can be consolidated and a new repayment schedule can be set and the new loan
can be secured with all existing collaterals.
vi. Hard Core Current Account Limit: In such cases a loan with a longer
repayment may be offered to replace / reduce the current account limit.
vii. Split and freeze: the customer's debt is split into sustainable and
unsustainable parts. The sustainable part is restructured to a sustainable
repayment program. The unsustainable part is 'frozen' for the restructured
duration of the sustainable part. At the maturity of the restructuring, the
frozen part is either forgiven pro rata (based on the actual repayment of the
sustainable part) or restructured.
viii. Rescheduling of payments: the existing contractual repayment schedule is
adjusted to a new sustainable repayment program based on a realistic, current
and forecasted, assessment of the cash flow generation of the borrower.
ix. Liquidation Collateral: An agreement between BOC PCL and a borrower
for the voluntary sale of mortgaged assets, for partial or full repayment of
the debt.
x. Currency Conversion: This solution is provided to match the credit
facility currency and the borrower's income currency.
i. Additional Financing: This solution can be granted, simultaneously
with the restructuring of the existing credit facilities of the borrower, to
cover any financing gap.
ii. Partial or total write off: This solution corresponds to the Group
forfeiting the right to legally recover part or the whole of the amount of
debt outstanding by the borrower.
iii. Debt/equity swaps: debt restructuring that allows partial or full
repayment of the debt in exchange of obtaining an equivalent amount of equity
by the Group, with the remaining debt right sized to the cash flows of the
borrower to allow repayment. This solution is used only in exceptional cases
and only where all other efforts for restructuring are exhausted and after
ensuring compliance with the banking law.
iv. Debt/asset swaps: agreement between the Group and the borrower to
voluntarily transfer the mortgaged asset or other immovable property to the
Group, to partially or fully repay the debt. Any residual debt may be
restructured within an appropriate repayment schedule in line with the
borrower's reassessed repayment ability.
The loans forborne continue to be classified as Stage 3 in the case they are
performing forborne exposures under probation for which additional forbearance
measures are extended, or performing forborne exposures, previously classified
as NPEs that present more than 30 days past due within the probation period.
Forbearance modifications of loans and advances that do not affect payment
arrangements, such as restructuring of collateral or security arrangements,
are not regarded as sufficient to categorise the facility as credit impaired,
as by themselves they do not necessarily indicate credit distress affecting
payment ability such that would require the facility to be classified as NPE.
The forbearance characteristic contributes in two specific ways for the
calculation of lifetime ECL for each individual facility. Specifically, it is
taken into consideration in the scorecard development, where, if this
characteristic is identified as statistically significant, it affects
negatively the rating of each facility. It also contributes in the
construction through the cycle probability of default and cure curves, where,
when feasible, a specific curve for the forborne products is calculated and
assigned accordingly.
The below table presents the movement of the Group's forborne loans and
advances to customers measured at amortised cost.
30 June 31 December 2022
2023
€000 €000
1 January 1,106,298 1,469,182
New loans and advances forborne in the period/year 18,467 130,547
Loans no longer classified as forborne and repayments (418,125) (241,739)
Write off of forborne loans and advances (3,698) (77,357)
Interest accrued on forborne loans and advances 28,095 57,795
Foreign exchange adjustments (47) 3,115
Derecognition of Helix 3 and Sinope portfolios - (235,245)
30 June/31 December 730,990 1,106,298
The forborne loans classification is discontinued when all EBA criteria for
the discontinuation of the classification as forborne exposure are met. The
criteria are set out in the EBA Final draft Implementing Technical Standards
(ITS) on supervisory reporting and non‑performing exposures.
The below tables present the Group's forborne loans and advances to customers
by staging, economic activity and business line classification, as well as the
ECL allowance and tangible collateral held for such forborne loans.
30 June 31 December
2023
2022
€000 €000
Stage 1 - -
Stage 2 517,449 857,356
Stage 3 187,020 215,730
POCI 26,521 33,212
730,990 1,106,298
Fair value of collateral
30 June 31 December
2023
2022
€000 €000
Stage 1 - -
Stage 2 493,444 818,138
Stage 3 147,787 172,501
POCI 24,600 30,188
665,831 1,020,827
The fair value of collateral presented above has been computed to the extent
that the collateral mitigates credit risk.
Credit risk concentration
30 June 31 December
2023
2022
By economic activity €000 €000
Trade 30,420 41,038
Manufacturing 13,612 17,080
Hotels and catering 132,823 282,460
Construction 143,637 245,695
Real estate 97,245 145,840
Private individuals 224,242 279,934
Professional and other services 62,616 76,135
Shipping - -
Other sectors 26,395 18,116
730,990 1,106,298
30 June 2023 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate and Large corporate - 367,669 48,720 2,915 419,304
SMEs - 29,320 1,333 631 31,284
Retail
‑ housing - 54,408 14,021 1,721 70,150
‑ consumer, credit cards and other - 14,378 5,676 166 20,220
Restructuring
‑ corporate - 18,975 6,422 10,169 35,566
‑ SMEs - 6,081 8,600 2,042 16,723
‑ retail housing - 18,453 27,422 1,935 47,810
‑ retail other - 4,385 7,369 387 12,141
Recoveries
‑ corporate - - 5,132 383 5,515
‑ SMEs - - 12,266 496 12,762
‑ retail housing - - 38,193 4,680 42,873
‑ retail other - - 10,830 995 11,825
International business unit - 3,152 1,036 4,189
1
Wealth management - 628 - - 628
- 517,449 187,020 26,521 730,990
31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total
By business line €000 €000 €000 €000 €000
Corporate and Large corporate - 628,104 50,688 5,590 684,382
SMEs - 72,727 869 878 74,474
Retail
‑ housing - 62,312 20,502 2,505 85,319
‑ consumer, credit cards and other - 20,207 7,653 1,084 28,944
Restructuring
‑ corporate - 31,637 6,060 10,143 47,840
‑ SMEs - 7,240 11,918 1,844 21,002
‑ retail housing - 19,912 30,649 2,755 53,316
‑ retail other - 4,924 9,021 457 14,402
Recoveries
‑ corporate - - 5,837 442 6,279
‑ SMEs - - 14,449 1,186 15,635
‑ retail housing - - 44,191 5,049 49,240
‑ retail other - - 12,705 1,278 13,983
International business unit - 10,293 1,188 11,482
1
- 857,356 215,730 33,212 1,106,298
ECL allowance
30 June 31 December
2023
2022
€000 €000
Stage 1 - -
Stage 2 13,102 13,939
Stage 3 73,271 68,557
POCI 11,641 11,259
98,014 93,755
31. Risk management ‑ Market risk
Market risk is the risk of loss from adverse changes in market prices namely
from changes in interest rates, foreign currency exchange rates, property and
security prices. The Market and Liquidity Risk department is responsible for
monitoring the risk on financial instruments resulting from such changes with
the objective to minimise the impact on earnings and capital. The department
also monitors liquidity risk and credit risk from counterparties and
countries. It is also responsible for monitoring compliance with the various
market risk policies and procedures.
Interest rate risk
Interest rate risk refers to the current or prospective risk to Group's
capital and earnings arising from adverse movements in interest rates that
affect the Group's banking book positions.
Interest rate risk is measured mainly using the impact on net interest income
and impact on economic value. In addition to the above measures, interest rate
risk is also measured using interest rate risk gap analysis, where the assets,
liabilities and off‑balance sheet items are classified according to their
remaining repricing period. Items that are not sensitive to rate changes are
recognised as non‑rate sensitive (NRS) items. The present value of one basis
point (PV01) is also calculated. Interest rate risk is managed through a
1‑Year Interest Rate Effect (IRE) limit on the maximum reduction of net
interest income under the various interest rate shock scenarios. Limits are
set as a percentage of the Group regulatory capital and as a percentage of the
net interest income. There are overall limits as well as different limits for
the Euro and the US Dollar.
Sensitivity analysis
The table below sets out the impact on the Group's net interest income, over a
one‑year period, from reasonably possible changes in the interest rates of
the Euro and the US Dollar, being the main currencies, using the assumption of
the prevailing market risk policy for the current and the comparative period:
Impact on Net Interest Income in €000
Currency Interest Rate Scenario 30 June 31 December
2023
2022
(60 bps for Euro and 75 bps for US Dollar)
(60 bps for Euro and 75 bps for US Dollar)
All Parallel up 67,248 73,126
All Parallel down (73,993) (77,043)
All Steepening (52,944) (56,569)
All Flattening 55,446 59,657
All Short up 65,839 70,381
All Short down (69,914) (73,896)
Euro Parallel up 66,600 71,829
Euro Parallel down (72,536) (75,343)
Euro Steepening (52,115) (55,812)
Euro Flattening 55,162 59,132
Euro Short up 65,230 69,180
Euro Short down (68,587) (72,216)
US Dollar Parallel up 648 1,298
US Dollar Parallel down (1,457) (1,700)
US Dollar Steepening (829) (757)
US Dollar Flattening 284 525
US Dollar Short up 609 1,202
US Dollar Short down (1,327) (1,680)
The above sensitivities incorporate assumptions on the pass‑through change
of time deposits.
The table below sets out the impact on the Group's equity, from reasonably
possible changes in the interest rates under various interest rate scenarios
for the Euro and the US Dollar in line with the EBA guidelines.
Impact on
Equity in
€000
Currency Interest Rate Scenario 30 June 31 December 2022
2023
(60 bps for Euro and 75 bps for US Dollar)
(60 bps for Euro and 75 bps for US Dollar)
All Parallel up 16,609 31,739
All Parallel down (7,861) (68,581)
All Steepening (6,201) 11,884
All Flattening 1,122
369
All Short up 5,947 27,212
All Short down (17,438) (35,032)
Euro Parallel up 27,669 54,878
Euro Parallel down (1,962) (59,502)
Euro Steepening (6,671) 23,018
Euro Flattening 2,960
526
Euro Short up 7,726 47,696
Euro Short down (13,089) (28,040)
US Dollar Parallel up 5,549 8,599
US Dollar Parallel down (5,899) (9,079)
US Dollar Steepening
940 750
US Dollar Flattening (358)
212
US Dollar Short up 4,167 6,727
US Dollar Short down (4,349) (6,992)
The aggregation of the impact on equity was performed as per the EBA
guidelines by adding the negative and 50% of the positive impact of each
scenario.
In addition to the above fluctuations in net interest income, interest rate
changes can result in fluctuations in the fair value of investments at FVPL
(including investments held for trading) and in the fair value of derivative
financial instruments impacting the profit and loss of the Group.
The equity of the Group is also affected by changes in market interest rates.
The impact on the Group's equity arises from changes in the fair value of
fixed rate debt securities classified at FVOCI.
The sensitivity analysis is based on the assumption of a parallel shift of the
yield curve. The table below sets out the impact on the Group's profit/loss
before tax and equity as a result of reasonably possible changes in the
interest rates of the major currencies.
Parallel change in interest rates Impact on profit/loss before tax Impact on equity
((increase)/decrease in net
interest income)
30 June €000 €000
2023
+0.75% for US Dollar
+0.6% for Euro (651) (402)
+0.4% for British Pound
‑0.75% for US Dollar
‑0.6% for Euro 651 402
‑0.4% for British Pound
Impact on profit/loss before tax Impact on equity
Parallel change in interest rates €000 €000
((increase)/decrease in net
interest income)
31 December
2022
+0.75% for US Dollar
+0.6% for Euro (466) (394)
+0.4% for British Pound
‑0.75% for US Dollar
‑0.6% for Euro 466 386
‑0.4% for British Pound
Interest rate benchmark reform
The LIBOR and the EURIBOR (collectively referred to as IBORs) have been the
subject of international, national and other regulatory guidance and proposals
for reform. Some of these reforms are already effective while others are still
to be implemented. These reforms may cause such benchmarks to perform
differently from the past or cease to exist entirely or have other
consequences that cannot be predicted.
Regarding LIBOR reform, regulators and industry working groups have identified
alternative rates to transition to. In March 2021 the Financial Conduct
Authority (FCA) confirmed that all LIBOR settings will either cease to be
provided by any administrator or no longer be representative of the underlying
market they intended to measure:
i. immediately after 31 December 2021, in the case of all sterling,
euro, Swiss franc and Japanese yen settings, and the 1 week and 2 month US
dollar settings; and
ii. immediately after 30 June 2023, in the case of the remaining US
dollar settings.
In September 2022, the FCA confirmed that the publication of 1‑month and
6‑month synthetic GBP LIBOR will be required until the end of March 2023,
after which date these settings permanently ceased. On 3 April 2023, the FCA
confirmed that the 3‑month synthetic GBP LIBOR setting is expected to cease
to be published at the end of March 2024.
Also, under their new use restriction power they would prohibit new use of USD
LIBOR from the end of 2021, except in specific circumstances. On 3 April 2023,
the FCA announced its decision to require IBA to continue to publish the
1‑month, 3‑month and 6‑month USD LIBOR settings using an
unrepresentative synthetic basis and it is expected to cease to be published
at the end of September 2024. They have decided to permit the use of these
settings in all legacy contracts except cleared derivatives.
How the Group is managing the transition to alternative benchmark rates
BOC PCL established a project to manage the transition to alternative interest
rate benchmarks with the Director of Treasury as the project owner and with
oversight from a dedicated Benchmark Steering Committee. The main divisions
involved in the project at the highest level are the Legal Department,
Treasury, Risk Management, Finance, Information Technology (IT), Operations
and the business lines. The Assets and Liabilities Committee (ALCO) monitors
the project.
The Group's transition project also involved the drawing up of appropriate
fallback provisions for LIBOR linked contracts and transition mechanisms in
its floating rate assets and liabilities with maturities after 2021.
For the legacy non‑cleared derivatives exposures, the Group has adhered to
the International Swaps and Derivatives Association (ISDA) protocol which came
into effect in January 2021, while for cleared derivatives, BOC PCL adopted
the market wide standardised approach to be followed by the relevant clearing
house.
The Group proactively engaged with its customer base and market counterparties
for the amendment of substantially all impacted LIBOR contracts for
transitioning to alternative rates. Those legacy credit facilities in CHF for
which the contract was not amended by the first interest period commencing in
2022 ('tough legacy'), have been transitioned to the statutory rate provided
by EU legislation. The Group has also transitioned its tough legacy JPY and
GBP credit facilities to alternative rates by notifying its customer base
accordingly and reserving the right to use a statutory rate provided by EU
legislation in case such a rate is nominated in the future.
The Group has also made the necessary arrangements to transition its tough
legacy USD credit facilities to alternative rates and notified its customer
base accordingly and reserving the right to use a statutory rate provided by
EU legislation in case such a rate is nominated in the future.
The Group has also engaged in client communication to inform customers and
ensure a smooth transition of credit facilities to RFRs. New RFR lending
products have also been introduced and adopted across the Group's key
currencies.
BOC PCL has dedicated teams in place to support the transition and
continuously assess, monitor and dynamically manage risks arising from the
transition when required.
The Group has also been actively monitoring any market and regulatory
developments published by regulatory bodies, as well as by relevant Working
Groups across various jurisdictions.
The Group will continue to assess, monitor and dynamically manage risks, and
implement specific mitigating controls when required, progressing towards an
orderly transition to alternative benchmarks.
The following table summarises the significant non‑derivative exposures
impacted by interest rate benchmark reform which have yet to transition as at
30 June 2023 and as at 31 December 2022 to the replacement benchmark rate at
the respective date:
30 June 2023 USD Other LIBOR Total
LIBOR
Non‑derivative financial assets €000 €000 €000
Loans and advances to customers 210,761 145 210,906
Loans and advances to banks - 3,276 3,276
Total 210,761 3,421 214,182
Non‑derivative financial liabilities
Deposits by banks - 281 281
Total - 281 281
31 December 2022 USD Other LIBOR Total
LIBOR
Non‑derivative financial assets €000 €000 €000
Loans and advances to customers 283,509 316 283,825
Loans and advances to banks 26,607 4,297 30,904
Total 310,116 4,613 314,729
Non‑derivative financial liabilities
Deposits by banks 7,416 248 7,664
Total 7,416 248 7,664
EURIBOR is in compliance with the EU Benchmarks Regulation and can continue to
be used as a benchmark interest rate for existing and new contracts. The Group
therefore, does not consider that Group's exposure to EURIBOR is affected by
the BMR reform.
For derivatives in hedging relationships subject to IBOR reform refer to Note
16.
Currency risk
Currency risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in foreign currency
exchange rates.
The impact on equity arises mainly from the impact of hedging instruments used
to hedge part of the net assets of the subsidiaries. At Group level, there is
an approximately equal and opposite impact on equity from the revaluation of
the net assets of the foreign operations of the Group.
Price risk
Equity securities price risk
The risk of loss from changes in the price of equity securities arises when
there is an unfavourable change in the prices of equity securities held by the
Group as investments.
Debt securities price risk
Debt securities price risk is the risk of loss as a result of adverse changes
in the prices of debt securities held by the Group. Debt security prices
change as the credit risk of the issuer changes and/or as the interest rate
changes mainly for fixed rate securities. The Group invests a significant part
of its liquid assets in highly rated securities. The average Moody's Investors
Service rating of the debt securities portfolio of the Group as at 30 June
2023 was A2 (31 December 2022: A2). The average rating excluding the Cyprus
Government bonds and non‑rated transactions as at 30 June 2023 was Aa2 (31
December 2022: Aa2).
Property price risk
A significant part of the Group's loan portfolio is secured by real estate,
the majority of which is located in Cyprus. Furthermore, the Group holds a
substantial number of properties mainly arising from loan restructuring
activities; the enforcement of loan collateral and debt for asset swaps. These
properties are held by the Group primarily as stock of properties and some are
held as investment properties.
Property risk is the risk that the Group's business and financial position
will be affected by adverse changes in the demand for, and prices of, real
estate, or by regulatory capital requirements relating to increased charges
with respect to the stock of properties held.
32. Risk management ‑ Liquidity and funding risk
Liquidity Risk
Liquidity risk is the risk that the Group is unable to fully or promptly meet
current and future payment obligations as and when they fall due. This risk
includes the possibility that the Group may have to raise funding at high cost
or sell assets at a discount to fully and promptly satisfy its obligations.
It reflects the potential mismatch between incoming and outgoing payments,
taking into account unexpected delays in repayment and unexpectedly high
payment outflows. Liquidity risk involves both the risk of unexpected
increases in the cost of funding of the portfolio of assets and the risk of
being unable to liquidate a position in a timely manner on reasonable terms.
In order to limit this risk, management has adopted the Liquidity Policy of
managing assets, taking liquidity into consideration and monitoring cash flows
and liquidity on a regular basis. The Group has developed internal control
processes and contingency plans for managing liquidity risk.
Management and structure
The Board of Directors sets the Group's Liquidity Risk Appetite which defines
the level of risk at which the Group should operate.
The Board of Directors, through its Risk Committee, approves the Liquidity
Policy Statement and reviews at frequent intervals the liquidity position of
the Group.
The ALCO is responsible for setting the policies for the effective management
and monitoring of liquidity risk across the Group.
The Treasury Division is responsible for liquidity management at Group level,
ensuring compliance with internal policies and regulatory liquidity
requirements and providing direction as to the actions to be taken regarding
liquidity needs. Treasury Division assesses on a continuous basis the adequacy
of the liquid assets and takes the necessary actions to ensure a comfortable
liquidity position.
Liquidity is also monitored by Market and Liquidity Risk department, to ensure
compliance with both internal policies and limits, and with the limits set by
the regulatory authorities. Market and Liquidity Risk department reports the
liquidity position to ALCO at least monthly. It also provides the results of
various stress tests to ALCO at least quarterly.
Liquidity is monitored and managed on an ongoing basis through:
(i) Risk appetite: establishes the Group's Risk Appetite
Statement together with the appropriate limits for the management of all risks
including liquidity risk.
(ii) Liquidity Policy: sets the responsibilities for managing
liquidity risk as well as the framework, limits and reporting on liquidity and
funding.
(iii) Liquidity limits: a number of internal and regulatory
limits are monitored on a regular basis. Where applicable, a traffic light
system (RAG) has been introduced for the ratios, in order to raise flags and
take action when the ratios deteriorate.
(iv) Early warning indicators: monitoring of a range of
indicators for early signs of liquidity risk in the market or specific to the
Group. These are designed to immediately identify the emergence of increased
liquidity risk so as to maximise the time available to execute appropriate
mitigating actions.
(v) Liquidity Contingency Plan: maintenance of a Liquidity
Contingency Plan (LCP) which is designed to provide a framework where a
liquidity stress could be effectively identified and managed. The LCP provides
a communication plan and includes management actions to respond to liquidity
stresses.
(vi) Recovery Plan: the Group has developed a Recovery Plan
(RP), the key objectives of which are, among others, to set key Recovery and
Early Warning Indicators and to set in advance a range of recovery options to
enable the Group to be adequately prepared to respond to stressed conditions
and restore the Group's liquidity position.
Monitoring process
Daily
The daily monitoring of the stock of highly liquid assets is important to
safeguard and ensure the uninterrupted operations of the Group's activities.
Market and Liquidity Risk department prepares a daily report analysing the
internal liquidity buffer and comparing it to the previous day's buffer.
Results are made available to members of the Risk and Treasury Divisions. In
addition, Treasury monitors daily and intraday the customer inflows and
outflows in the main currencies used by the Group.
The liquidity buffer is made up of: Banknotes, CBC balances (excluding the
Minimum Reserve Requirements (MRR)), unpledged cash and nostro current
accounts, as well as money market placements up to the stress horizon,
available ECB credit line and market value net of haircut of
unencumbered/available liquid bonds.
Market and Liquidity Risk department also prepares daily stress testing for
bank specific, market wide and combined scenarios. The requirement is to have
sufficient liquidity buffer to enable BOC PCL to survive a twelve‑month
stress period, including capacity to raise funding under all scenarios.
Moreover, an intraday liquidity stress test takes place to ensure that the
Group maintains sufficient liquidity buffer in immediately accessible form, to
enable it to meet the stressed intraday payments.
The designing of the stress tests follows guidance and is based on the
liquidity risk drivers which are recognised internationally by both the
Prudential Regulation Authority (PRA) and EBA. In addition, it takes into
account SREP recommendations, as well as the Annual Risk Identification
Process of the Group. The stress test assumptions are reviewed on an annual
basis and approved by the Board through its Risk Committee. Whenever it is
considered appropriate to amend the assumptions during the year, approval is
requested from ALCO and the Risk Committee. The main items shocked in the
different scenarios are: deposit outflows, wholesale funding, loan repayments,
off balance sheet commitments, marketable securities, own issue covered bond,
additional credit claims, interbank takings and cash collateral for
derivatives and repos.
Weekly
Market and Liquidity Risk department prepares a report indicating the level of
Liquid Assets including Credit Institutions Money Market Placements as per LCR
definitions.
Monthly
Market and Liquidity Risk department prepares reports monitoring compliance
with internal and regulatory liquidity ratios requirements and submits them to
the ALCO, the Executive Committee and the Risk Committee. It also calculates
the expected flows under a stress scenario and compares them with the
available liquidity buffer in order to calculate the survival days. The fixed
deposit renewal rates, the percentage of International business unit deposits
over total deposits and the percentage of instant access deposits are also
presented. The liquidity mismatch in the form of the Maturity Ladder report
(for both contractual and behavioural flows) is presented to ALCO and the
resulting mismatch between assets and liabilities is compared to previous
month's mismatch.
Market and Liquidity Risk department also reports the Liquidity Coverage Ratio
(LCR) and Additional Liquidity Monitoring Metrics (ALMM) to the CBC/ECB on a
monthly basis.
Quarterly
The results of the stress testing scenarios are reported to ALCO and Risk
Committee quarterly as part of the quarterly Internal Liquidity Adequacy
Assessment Process (ILAAP) review. Market and Liquidity Risk department
reports the Net Stable Funding Ratio (NSFR) to the CBC/ECB quarterly.
Annually
The Group prepares on an annual basis its ILAAP package. The ILAAP package
provides a holistic view of the Group's liquidity adequacy under normal and
stress conditions. Within ILAAP, the Group evaluates its liquidity risk in the
context of established policies and processes for the identification,
measurement, management and monitoring of liquidity risk as implemented by the
institution.
Market and Liquidity Risk department also prepares an annual liquidity report,
run and submitted for five consecutive days to the ECB. The report includes
information on deposits breakdown, cash flow information, survival period, LCR
ratio, rollover of funding, funding gap (through the Maturity Ladder
analysis), concentration of funding and collateral details. It concludes on
the overall liquidity position of BOC PCL and describes the measures
implemented and to be implemented in the short‑term to improve liquidity
position if needed.
As part of the Group's procedures for monitoring and managing liquidity risk,
there is a Group Liquidity Contingency Plan (LCP) for handling liquidity
difficulties. The LCP details the steps to be taken in the event that
liquidity problems arise, which escalate to a special meeting of the Crisis
Management Committee for LCP (CMC‑LCP). The LCP sets out the members of this
committee and a series of the possible actions that can be taken. The LCP is
reviewed and tested at least annually.
Liquidity ratios
The Group LCR is calculated based on the Delegated Regulation (EU) 2015/61. It
is designed to establish a minimum level of high quality liquid assets
sufficient to meet an acute stress lasting for 30 calendar days. Τhe minimum
requirement is 100%. The Group also calculates its NSFR as per Capital
Requirements Regulation II (CRR II), with the limit set at 100%. The NSFR is
the ratio of available stable funding to required stable funding. NSFR has
been developed to promote a sustainable maturity structure of assets and
liabilities.
Funding risk
Funding risk is the risk that the Group does not have sufficiently stable
sources of funding or access to sources of funding may not always be available
at a reasonable cost and thus the Group may fail to meet its obligations,
including regulatory ones (e.g. MREL).
Main sources of funding
As at 30 June 2023, the Group's main sources of funding were its deposit base
and central bank funding, through the Eurosystem monetary policy operations.
Wholesale funding is also becoming an important source of funding, following
the refinancing of the Tier 2 for €300 million in April 2021, the issuance
of senior preferred debt of €300 million in June 2021, the refinancing of
AT1 for €220 million in June 2023 and the issuance of senior preferred debt
of €350 million in July 2023 (Note 37).
With respect to TLTRO III operations, the carrying value of the ECB funding as
at 30 June 2023 (after the early repayment of €1 billion within December
2022), was €2,004 million (31 December 2022: €1,977 million).
As at 30 June 2023, the wholesale funding nominal amount was €836 million
(31 December 2022: €820 million). This includes funding raised from the
wholesale debt capital markets of €236 million AT1 as described in Note 25,
€300 million Tier 2 issued in April 2021 and €300 million senior preferred
debt issued in June 2021.
Funding to subsidiaries
The funding provided by BOC PCL to its subsidiaries for liquidity purposes is
repayable as per the terms of the respective agreements.
The subsidiaries may proceed with dividend distributions in the form of cash
to BOC PCL, provided that they are not in breach of their regulatory capital
and liquidity requirements, where applicable.
Collateral requirements and other disclosures
Collateral requirements
The carrying values of the Group's encumbered assets as at 30 June 2023 and 31
December 2022 are summarised below:
30 June 31 December 2022
2023
€000 €000
Cash and other liquid assets 69,345 73,557
Investments 257,147 284,343
Loans and advances 3,334,668 3,273,369
3,661,160 3,631,269
Cash is mainly used to cover collateral required for derivatives, trade
finance transactions and guarantees issued. It may also be used as part of the
supplementary assets for the covered bond.
As at 30 June 2023 and 31 December 2022 investments are mainly used as
collateral for ECB funding or as supplementary assets for the covered bond.
Loans and advances indicated as encumbered as at 30 June 2023 and 31 December
2022 are mainly used as collateral for funding from the ECB and the covered
bond.
Loans and advances to customers include mortgage loans of a nominal amount of
€1,015 million as at 30 June 2023 (31 December 2022: €1,007 million) in
Cyprus, pledged as collateral for the covered bond issued by BOC PCL in 2011
under its Covered Bond Programme. Furthermore, as at 30 June 2023 housing
loans of a nominal amount of €2,310 million (31 December 2022: €2,287
million) in Cyprus, are pledged as collateral for funding from the ECB (Note
21).
BOC PCL maintains a Covered Bond Programme set up under the Cyprus Covered
Bonds legislation and the Covered Bonds Directive of the CBC. Under the
Covered Bond Programme, BOC PCL has in issue covered bonds of €650 million
secured by residential mortgages originated in Cyprus. The Covered Bonds have
a maturity date of 12 December 2026 and pay an interest rate of 3‑months
Euribor plus 1.25% on a quarterly basis. On 9 August 2022, BOC PCL proceeded
with an amendment to the terms and conditions of the covered bonds following
the implementation of Directive (EU) 2019/2162 in Cyprus. The covered bonds
are listed on the Luxemburg Bourse. The covered bonds have a conditional
Pass‑Through structure. All the bonds are held by BOC PCL. The covered bonds
are eligible collateral for the Eurosystem credit operations and are placed as
collateral for accessing funding from the ECB.
Other disclosures
Deposits by banks include balances of €25,003 thousand as at 30 June 2023
(31 December 2022: €29,100 thousand) relating to borrowings from
international financial and similar institutions for funding, aiming to
facilitate access to finance and improve funding conditions for small or
medium sized enterprises, active in Cyprus. The carrying value of the
respective loans and advances granted to such enterprises serving this
agreement amounts to €47,783 thousand as at 30 June 2023 (31 December 2022:
€55,152 thousand).
33. Capital management
The primary objective of the Group's capital management is to ensure
compliance with the relevant regulatory capital requirements and to maintain
healthy capital adequacy ratios to cover the risks of its business and support
its strategy and maximise shareholders' value.
The capital adequacy framework, as in force, was incorporated through the
Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
which came into effect on 1 January 2014 with certain specified provisions
implemented gradually. The CRR and CRD transposed the new capital, liquidity
and leverage standards of Basel III into the European Union's legal framework.
CRR establishes the prudential requirements for capital, liquidity and
leverage for credit institutions. It is directly applicable in all EU member
states. CRD governs access to deposit taking activities and internal
governance arrangements including remuneration, board composition and
transparency. Unlike the CRR, member states were required to transpose the CRD
into national law and national regulators were allowed to impose additional
capital buffer requirements.
On 27 June 2019, the revised rules on capital and liquidity (Regulation (EU)
2019/876 (CRR II) and Directive (EU) 2019/878 (CRD V)) came into force. As an
amending regulation, the existing provisions of CRR apply unless they are
amended by CRR II. Certain provisions took immediate effect (primarily
relating to Minimum Requirement for Own Funds and Eligible Liabilities
(MREL)), but most changes became effective as of June 2021. The key changes
introduced consist of, among others, changes to qualifying criteria for Common
Equity Tier 1 (CET1), Additional Tier 1 (AT1) and Tier 2 (T2) instruments,
introduction of requirements for MREL and a binding Leverage Ratio requirement
(as defined in the CRR) and a Net Stable Funding Ratio (NSFR).
The amendments that came into effect on 28 June 2021 are in addition to those
introduced in June 2020 through Regulation (EU) 2020/873, which among other,
brought forward certain CRR II changes in light of the COVID‑19 pandemic.
The main adjustments of Regulation (EU) 2020/873 that had an impact on the
Group's capital ratio relate to the acceleration of the implementation of the
new SME discount factor (lower RWAs), extending the IFRS 9 transitional
arrangements and introducing further relief measures to CET1 allowing to fully
add back to CET1 any increase in ECL recognised in 2020 and 2021 for
non‑credit impaired financial assets and phasing‑in this starting from
2022 (phasing‑in at 25% in 2022 and 50% in 2023) and advancing the
application of prudential treatment of software assets as amended by CRR II
(which came into force in December 2020). In addition, Regulation (EU)
2020/873 introduced a temporary treatment of unrealized gains and losses on
exposures to central governments, to regional governments or to local
authorities measured at fair value through other comprehensive income which
the Group elected to apply and implemented from the third quarter of 2020.
This temporary treatment was in effect until 31 December 2022.
The Group and BOC PCL have complied with the minimum capital requirements
(Pillar I and Pillar II).
In October 2021, the European Commission adopted legislative proposals for
further amendments to the CRR, CRD and the BRRD (the '2021 Banking Package').
Amongst other things, the 2021 Banking Package would implement certain
elements of Basel III that have not yet been transposed into EU law. The 2021
Banking Package is subject to amendment in the course of the EU's legislative
process; and its scope and terms may change prior to its implementation. In
addition, in the case of the proposed amendments to CRD and the BRRD, their
terms and effect will depend, in part, on how they are transposed in each
member state. The European Council's proposal on CRR and CRD was published on
8 November 2022. During February 2023, the European Parliament's ECON
Committee voted to adopt Parliament's proposed amendments to the Commission's
proposal, and the 2021 Banking Package is currently in the final stage of the
EU legislative process. It is expected that the 2021 Banking Package will come
in force on 1 January 2025; and certain measures are expected to be subject to
transitional arrangements or to be phased in over time.
The insurance subsidiaries of the Group, the General Insurance of Cyprus Ltd
and EuroLife Ltd, comply with the requirements of the Superintendent of
Insurance including the minimum solvency ratio. The regulated investment firm
(CIF) of the Group, The Cyprus Investment and Securities Corporation Ltd
(CISCO) complies with the minimum capital adequacy ratio requirements. In
February 2023, the activities of the regulated UCITS management company of the
Group, BOC Asset Management Ltd, were absorbed by CISCO and BOC Asset
Management Ltd was dissolved without liquidation. The payment services
subsidiary of the Group, JCC Payment Services Ltd, complies with the
regulatory capital requirements.
Additional information on regulatory capital is disclosed in 'Risk and Capital
Management Report', which is included in the Interim Financial Report 2023.
34. Related party transactions
Related parties of the Group include associates and joint ventures, key
management personnel, members of the Board of Directors and their connected
persons. Connected persons for the purpose of this disclosure include spouses,
minor/dependent children and companies in which the directors/key management
personnel, hold directly or indirectly, at least 20% of the voting shares in a
general meeting, or act as executive director or exercise control of the
entities in any way.
Fees and emoluments of members of the Board of Directors and key management
personnel
Six months ended
30 June
2023 2022
Directors' emoluments €000 €000
Executives
Salaries and other short‑term benefits 530 523
Employer's contributions 35
36
Retirement benefit plan costs 44
47
Share‑based benefits 114 -
727 602
Non‑executives
Fees 568 663
Total directors' emoluments 1,295 1,265
Key management personnel emoluments
Salaries and other short‑term benefits 1,530 1,397
Employer's contributions 176 163
Retirement benefit plan costs 133 105
Share‑based benefits 197 -
Total key management personnel emoluments 2,036 1,665
Total 3,331 2,930
The fees of the non‑executive Directors include fees as members of the Board
of Directors of the Company and its subsidiaries, as well as fees as members
of committees of the Board of Directors.
Key management personnel
The emoluments of key management personnel include the remuneration of the
members of the Executive Committee since the date of their appointment to the
Committee and the emoluments of other members of the Senior Management team
(Extended EXCO) (prior to the change in the Group organisational structure, in
2022 the key management personnel included those members of the management
team who reported directly to the Chief Executive Officer or to the Deputy
Chief Executive Officer & Chief of Business).
Aggregate amounts outstanding and additional transactions
The tables below show the deposits, loans and advances and other credit
balances held by the members of the Board of Directors and key management
personnel and their connected persons, as at the balance sheet date.
30 June 31 December 2022
2023
Loans and advances €000 €000
‑ members of the Board of Directors and key management personnel 2,149 2,296
‑ connected persons 653 681
2,802 2,977
Deposits
‑ members of the Board of Directors and key management personnel 4,428 5,534
‑ connected persons 3,179 3,178
7,607 8,712
The above table does not include period/year‑end balances of members of the
Board of Directors and key management personnel and their connected persons
who resigned during the period/year, nor balances of customers that do not
meet the definition of connected persons as at the reporting periods.
The aggregate expected credit loss allowance on the above loans and credit
facilities is below €16 thousand as at 30 June 2023 (31 December 2022: below
€6 thousand). All principal and interest that has fallen due on these loans
or credit facilities has been paid.
All transactions with members of the Board of Directors and their connected
persons are made on normal business terms as for comparable transactions,
including interest rates, with customers of a similar credit standing. A
number of loans and advances have been extended to key management personnel on
the same terms as those applicable to the rest of the Group's employees and to
their connected persons on the same terms as those of customers.
The table below discloses interest, commission and insurance premium income,
as well as other transactions and expenses with the members of the Board of
Directors, key management personnel and their connected persons for the
reference period.
Six months ended
30 June
2023 2022
€000 €000
Interest income for the period 29
49
Interest expense for the period -
2
Commission income for the period 3
1
Insurance premium income for the period 236 206
Subscriptions and insurance expenses for the period 381 488
Interest income and expense are disclosed for the period during which they
were members of the Board of Directors or served as key management personnel.
During the six months ended 30 June 2022 connected persons of key management
personnel transacted with REMU for the purchase of a property amounting to
€58 thousand. The transaction was made on normal business terms as for
comparable transactions with third parties.
In addition to loans and advances, there were contingent liabilities and
commitments in respect of members of the Board of Directors and their
connected persons, mainly in the form of documentary credits, guarantees and
commitments to lend, amounting to €141 thousand as at 30 June 2023 (31
December 2022: €120 thousand).
There were also contingent liabilities and commitments to key management
personnel and their connected persons amounting to €1,429 thousand as at 30
June 2023 (31 December 2022: €1,227 thousand).
The total unsecured amount of the loans and advances and contingent
liabilities and commitments to members of the Board of Directors, key
management personnel and their connected persons (using forced‑sale values
for tangible collaterals and assigning no value to other types of collaterals)
at 30 June 2023 amounted to €1,744 thousand (31 December 2022: €1,212
thousand).
During the six months ended 30 June 2023 premiums of €89 thousand (30 June
2022: €94 thousand) and nil claims (30 June 2022: €20 thousand) were paid
by/to the members of the Board of Directors of the Company and their connected
persons to/from the insurance subsidiaries of the Group.
There were no other transactions during the six months ended 30 June 2023 and
the six months ended 30 June 2022 with connected persons of the current
members of the Board of Directors or with any members who resigned during the
period/year.
35. Group companies
The main subsidiary companies and branches included in the Consolidated
Financial Statements of the Group, their country of incorporation, their
activities and the percentage held by the Company (directly or indirectly) as
at 30 June 2023 are:
Company Country Activities Percentage holding (%)
Bank of Cyprus Holdings Public Limited Company Ireland Holding company n/a
Bank of Cyprus Public Company Ltd Cyprus Commercial bank 100
EuroLife Ltd Cyprus Life insurance 100
General Insurance of Cyprus Ltd Cyprus Non‑life insurance 100
JCC Payment Systems Ltd Cyprus Card processing transaction services 75
The Cyprus Investment and Securities Corporation Ltd (CISCO) Cyprus Investment banking and brokerage and management administration and safekeeping 100
of UCITS Units
Jinius Ltd Cyprus Digital Economy Platform 100
LCP Holdings and Investments Public Ltd Cyprus Investments in securities and participations in companies and schemes that are 67
active in various business sectors and projects
Kermia Ltd Cyprus Property trading and development 100
Kermia Properties & Investments Ltd Cyprus Property trading and development 100
S.Z. Eliades Leisure Ltd Cyprus Land development and operation of a golf resort 70
Auction Yard Ltd Cyprus Auction company 100
BOC Secretarial Company Ltd Cyprus Secretarial services 100
Bank of Cyprus Public Company Ltd (branch of BOC PCL) Greece Administration of guarantees and holding of real estate properties n/a
BOC Asset Management Romania S.A. Romania Collection of the existing portfolio of receivables, including third party 100
collections
MC Investment Assets Management LLC Russia Problem asset management company 100
Fortuna Astrum Ltd Serbia Problem asset management company 100
In December 2022 the Company incorporated Jinius Ltd, a 100% subsidiary, which
has been set up to provide and administrate a Digital Economy Platform. As at
31 December 2022 this subsidiary was inactive and in the six months ended 30
June 2023 the activities of BOC PCL in relation to the Digital Economy
Platform were transferred to Jinius Ltd. Jinius Ltd is 100% subsidiary of BOC
PCL as at 30 June 2023.
In February 2023, the Group proceeded with a restructuring of its investment
banking and brokerage activities through the absorption by CISCO of BOC Asset
Management Ltd's activities. BOC Asset Management Ltd was subsequently
dissolved.
In addition to the above companies, as at 30 June 2023 BOC PCL had 100%
shareholding in the companies listed below, whose activity is the ownership
and management of immovable property:
Cyprus: Hamura Properties Ltd, Tolmeco Properties Ltd, Dilero Properties Ltd,
Pelika Properties Ltd, Cobhan Properties Ltd, Ramendi Properties Ltd, Nalmosa
Properties Ltd, Emovera Properties Ltd, Estaga Properties Ltd, Skellom
Properties Ltd, Blodar Properties Ltd, Cranmer Properties Ltd, Les Coraux
Estates Ltd, Natakon Company Ltd, Oceania Ltd, Dominion Industries Ltd, Ledra
Estate Ltd, EuroLife Properties Ltd, Laiki Lefkothea Center Ltd, Labancor Ltd,
Joberco Ltd, Zecomex Ltd, Domita Estates Ltd, Memdes Estates Ltd, Edoric
Properties Ltd, Kernland Properties Ltd, Jobelis Properties Ltd, Melsolia
Properties Ltd, Koralmon Properties Ltd, Spacous Properties Ltd, Calinora
Properties Ltd, Marcozaco Properties Ltd, Soluto Properties Ltd, Solomaco
Properties Ltd, Linaland Properties Ltd, Unital Properties Ltd, Neraland
Properties Ltd, Wingstreet Properties Ltd, Nolory Properties Ltd, Lynoco
Properties Ltd, Fitrus Properties Ltd, Lisbo Properties Ltd, Mantinec
Properties Ltd, Colar Properties Ltd, Irisa Properties Ltd, Provezaco
Properties Ltd, Hillbay Properties Ltd, Ofraco Properties Ltd, Forenaco
Properties Ltd, Hovita Properties Ltd, Astromeria Properties Ltd, Regetona
Properties Ltd, Camela Properties Ltd, Fareland Properties Ltd, Barosca
Properties Ltd, Fogland Properties Ltd, Tebasco Properties Ltd, Valecross
Properties Ltd, Altco Properties Ltd, Olivero Properties Ltd, Jaselo
Properties Ltd, Elosa Properties Ltd, Flona Properties Ltd, Toreva Properties
Ltd, Resoma Properties Ltd, Mostero Properties Ltd, Helal Properties Ltd,
Pendalo Properties Ltd, Frontyard Properties Ltd, Bonsova Properties Ltd,
Thermano Properties Ltd, Venicous Properties Ltd, Lorman Properties Ltd,
Eracor Properties Ltd, Rulemon Properties Ltd, Maledico Properties Ltd,
Bascone Properties Ltd, Balasec Properties Ltd, Bendolio Properties Ltd,
Diafor Properties Ltd, Kartama Properties Ltd, Paramina Properties Ltd,
Nouralia Properties Ltd, Resocot Properties Ltd, Soblano Properties Ltd,
Talamon Properties Ltd, Weinar Properties Ltd, Zemialand Properties Ltd,
Asianco Properties Ltd, Coeval Properties Ltd, Finevo Properties Ltd, Mazima
Properties Ltd, Nigora Properties Ltd, Riveland Properties Ltd, Rosalica
Properties Ltd, Secretsky Properties Ltd, Senadaco Properties Ltd, Tasabo
Properties Ltd, Venetolio Properties Ltd, Zandexo Properties Ltd, Odolo
Properties Ltd, Calandomo Properties Ltd, Molemo Properties Ltd, Samilo
Properties Ltd, Sendilo Properties Ltd, Baleland Properties Ltd, Alezia
Properties Ltd, Zenoplus Properties Ltd, Alepar Properties Ltd, Enelo
Properties Ltd, Monata Properties Ltd, Vertilia Properties Ltd, Amary
Properties Ltd, Aparno Properties Ltd, Lomenia Properties Ltd, Midelox
Properties Ltd, Montira Properties Ltd, Orilema Properties Ltd and Philiki
Ltd.
Romania: Otherland Properties Dorobanti SRL, Green Hills Properties SRL,
Imoreth Properties SRL, Inroda Properties SRL, Zunimar Properties SRL, Allioma
Properties SRL and Nikaba Properties SRL.
Further, at 30 June 2023 BOC PCL had 100% shareholding in Obafemi Holdings
Ltd, Stamoland Properties Ltd, Unoplan Properties Ltd, Petrassimo Properties
Ltd and Gosman Properties Ltd.
The main activities of the above companies are the holding of shares and other
investments and the provision of services.
At 30 June 2023 BOC PCL had 100% shareholding in BOC Terra AIF V.C.I Plc which
is a real estate alternative investment fund, currently inactive.
At 30 June 2023 BOC PCL had 100% shareholding in the companies listed below
which are reserved to accept property:
Cyprus: Holstone Properties Ltd, Cramonco Properties Ltd, Carilo Properties
Ltd, Gelimo Properties Ltd, Rifelo Properties Ltd, Avaleto Properties Ltd,
Larizemo Properties Ltd and Olisto Properties Ltd.
In addition, BOC PCL holds 100% of the following intermediate holding
companies:
Cyprus: Otherland Properties Ltd, Battersee Properties Ltd, Bonayia Properties
Ltd, Janoland Properties Ltd, Imoreth Properties Ltd, Inroda Properties Ltd,
Zunimar Properties Ltd, Nikaba Properties Ltd, Allioma Properties Ltd,
Landanafield Properties Ltd and Hydrobius Ltd.
BOC PCL also holds 100% of the following companies which are inactive:
Cyprus: Laiki Bank (Nominees) Ltd, Paneuropean Ltd, Nelcon Transport Co. Ltd,
Iperi Properties Ltd, CYCMC IV Ltd, Prodino Properties Ltd, Thryan Properties
Ltd, Canosa Properties Ltd, Ensolo Properties Ltd, Hοmirova Properties Ltd
and Settle Cyprus Ltd.
Greece: Kyprou Zois (branch of EuroLife Ltd), Kyprou Asfalistiki (branch of
General Insurance of Cyprus Ltd), Kyprou Commercial SA and Kyprou Properties
SA.
All Group companies are accounted for as subsidiaries using the full
consolidation method. All companies listed above have share capital consisting
of ordinary shares.
Acquisitions of subsidiaries
During the six months ended 30 June 2023 and during the year ended 31 December
2022 there were no acquisitions of subsidiaries.
Dissolution and disposal of subsidiaries
There were no material disposals of subsidiaries during the six months ended
30 June 2023. Salecom Ltd, Romaland Properties Ltd, Trecoda Properties Ltd,
Weinco Properties Ltd and Cyprialife Ltd were dissolved during the six months
ended 30 June 2023. Thelemic Properties Ltd, Arlona Properties Ltd, Tebane
Properties Ltd and Nivamo Properties Ltd were disposed of during the six
months ended 30 June 2023.
As at 30 June 2023, the following subsidiaries were in the process of
dissolution or in the process of being struck off: Fantasio Properties Ltd,
Demoro Properties Ltd, Bramwell Properties Ltd, Blindingqueen Properties Ltd,
Fairford Properties Ltd, Sylvesta Properties Ltd, Battersee Real Estate SRL,
Aktilo Properties Ltd, Stormino Properties Ltd, Tavoni Properties Ltd, Ameleto
Properties Ltd, Birkdale Properties Ltd, Folimo Properties Ltd, Steparco Ltd,
Thames Properties Ltd and Finerose Properties Ltd.
36. Investments in associates and joint venture
Percentage holding
Investments in associates (%)
Aris Capital Management LLC 30.0
Rosequeens Properties Limited 33.3
Fairways Automotive Holdings Ltd 45.0
The carrying values of the investments in associates are considered to be
fully impaired and their value has been restricted to zero.
Rosequeens Properties SRL
During the year ended 31 December 2022 the Group disposed of its 33.3% holding
in associate company Rosequeens Properties SRL.
Percentage holding
Investment in joint venture (%)
Tsiros (Agios Tychon) Ltd 50.0
The carrying value of the investment in the joint venture is considered to be
fully impaired and its value has been restricted to zero.
37. Events after the reporting period
In July 2023, BOC PCL issued a €350 million senior preferred note (the
'Notes') under the EMTN Programme. The Notes were priced at par with a fixed
coupon of 7.375% per annum, payable annually in arrear, until the Optional
Redemption Date (i.e., 25 July 2027). The maturity date of the Notes is 25
July 2028; however, BOC PCL may, at its discretion, redeem the Notes on the
Optional Redemption Date subject to meeting certain conditions (including
applicable regulatory consents) as specified in the terms and conditions of
the Notes. If the Notes are not redeemed by BOC PCL, the coupon payable from
the Optional Redemption Date until the Maturity Date will convert from a fixed
rate to a floating rate and will be equal to 3‑month Euribor plus 409.5
basis points, payable quarterly in arrears. The Notes are listed on the
Luxembourg Stock Exchange's Euro MTF market. The Notes comply with the
criteria for the minimum requirement for own funds and eligible liabilities
(MREL) and contribute towards BOC PCL's MREL requirements.
No other significant non‑adjusting events have taken place since 30 June
2023.
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. END IR FIFSETAIAIIVRecent news on Bank of Cyprus Holdings
See all newsREG - Jefferies Int Ltd. Jefferies Int Ltd. Bank of Cyprus Hldgs - Result of Placing in Bank of Cyprus
AnnouncementREG - Jefferies Int Ltd. Bank of Cyprus Hldgs Jefferies Int Ltd. - Proposed Secondary Placing in Bank of Cyprus
AnnouncementRCS - Bank of Cyprus Hldgs - BOCH - Transactions in Own Shares
AnnouncementRCS - Bank of Cyprus Hldgs - BOCH - Transactions in Own Shares
AnnouncementRCS - Bank of Cyprus Hldgs - Appointment of market maker
Announcement